I have written many times about the unsustainability of most pension promises in light of decades of chronic under-funding, unrealistic return assumptions, an aging population and overly generous benefit promises. See: The math of underfunded pensions, for one example.
An article in the Post yesterday about proposed changes to the taxpayer funded Canadian Pension Plan (CPP) adds important nuance to the discussion. See: The dirty secret of bigger CPP is that it’s to help bail out public sector pension plans:
As the federal and provincial governments continue discussing changes to the Canada Pension Plan, it is worth recalling that there are no public discussions of the most important pension issue in Canada: The unsustainable gap between the pensions of public servants and most everyone else. In fact, some critics maintain that the push to expand the CPP is driven by an unspoken need to prop up public-sector pension plans a little longer. However, doing so will only delay the inevitable overhaul of both the benefits and the funding of public-sector pensions.
The key issues surrounding public-service pension-plan benefits are mostly unspoken, both to their members and to taxpayers. Public-sector unions allow their members to believe the fiction that members contribute a fair share of their own retirement benefits, when really, the vast majority is funded by taxpayers. Few people appreciate how the CPP is folded into public-sector pension benefits: since benefits are “defined” in advance, an increase in CPP benefits reduces the amount that a public-sector pension needs to pay out to retired workers (leaving unchanged the total benefit payout to public-sector retirees). Meanwhile, taxpayers are kept in the dark about the full measure of unfunded future benefits they will have to pay, even as they shoulder more of the burden for their own retirement.
Hard to hear perhaps–but true. It is not that pension plans cannot be managed to support a long and civilized retirement for the masses. They can and, personally, I think they should. We are all headed toward old age, getting there with some financial security (shelter, health care, no debt and a comfortable income) is surely a worthwhile goal for individuals, their families, and society as a whole. But this requires adult discussions and ‘giving’ in the form of increased savings and reduced consumption in the present in order to ‘get’ a sustainable retirement income (and consumption) in the future.
Over the past 30 years of wanting it all today, ‘give to get’ has been an unpopular model. Unless and until, we restructure pension/savings plans–by increasing contributions in line with future withdrawal targets, lowering risk and return expectations, cutting fees extracted by finance, and in most cases, extending retirement ages toward 70–the holes in the future income bucket will not be filed, and rude awakenings for pension hopefuls and taxpayers will be plentiful. The later in life that financial disappointments hit, the harder they are to recover and repair from. In this regard, we are all running out of time. We must make wiser, more pragmatic choices, starting right now.
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