Op-Ed: Public sector unions count on bonanza in CPP pension reforms
Changes are coming to pensions in Canada. Canada's labour unions are pushing a plan that will boost the value of their pensions and eliminate the shortfalls in these pensions. The only problem taxpayers will have to pay for it.
Canadians will be watching an upcoming finance minister meeting in Kananaskis on December 20, 2010. The meeting is focusing on retirement income options for Canadians.
There is a problem in the level of retirement savings coverage for middle-income Canadians. Most Canadian have not saved enough for a reasonable retirement.
Two main options have come to the forefront as solutions to helping Canadians save more for their retirement. One option being pushed by Canadian labour unions is doubling the Canadian Pensions Plan (CPP). The other options involves a private savings plan or supplementary plan in addition to the CPP program
Both options enhance the current system but the one pushed by labour is a windfall for them. It will allow Canadian taxpayers, mainly businesses to cover the billion dollar shortfalls in many public sector pension plans.
Both options require Canadian businesses to contribute more money per employee, a move that will further increase the tax load on Canadian business and as a result will affect Canada's international competitiveness and productivity. Any increases in payroll contributions will have a devastating effect on our Canadian economy for small business. Small business is recognized a primary economic driver for our economy.
Currently the CPP plan pays a portion of public sector pension plans. These public sector pension plans are integrated with the CPP.
Pensions are calculated to generate 70% of the income of the public sector employee’s final average salary. For example on a $50,000 pension a portion or $11,200 currently, about 22%, will be paid for by CPP. The remaining $38,800 comes from the pension funds public sector employees have set aside for themselves.
The Canadian Labour Congress (CLC) has set out a plan that will see the CPP income double to $22,400. This means only $27,600 will come from the public sector employee pensions.
As an example, the Ontario Teachers Pension Plan provides pensions for 284,000 employees and pensioners. The doubling of the portion coming from CPP means the load will be lessened on the pension plan by about $79 Billion for all the current employees and retirees. Assuming most are retired for 25 years.
Public sector pension plans are designed with employee and employer contributions. A small business owners picks up contributions of 4.95% and this is matched by the employee.
The government acts as an employer and pay contributions to the CPP in the same manner as private employers. This money also comes from taxpayers.
Public sector pension plans are short billions of dollars. There is the expectation that these shortfalls will be covered by taxpayers.
The CD Howe in their report Supersized Superannuation: The Startling Fair-Value Cost of Federal. Government Pensions
has estimated the federal employee pension plan to be short about $197 Billion. In Ontario despite having almost $100 Billion the Ontario teachers pension is short $17 Billion. Recently the city of Ottawa had to raise taxes substantially to cover their share of a $9 Billion OMERS pension shortfall for city employees.
Raising CPP is a sleight of hand that will further bolster public sector employee pension plans by about 25%. Considering that Canada's public sector plans have accumulated in excess of $800 billion, that means a lot of money.
Canadian small business and employees through payroll contributions will pick up the cost of the shortfalls.
Fair Pensions For All is a blog written by Bill Tufts and covers the current crisis in pensions