Ontario taxpayers had high hopes that the highly-touted “tough and sweeping changes” to bloated public sector pensions in the budget would begin to fix a broken system. The budget fell far short of this goal.
The budget polices that were announced regarding pensions were woefully inadequate and downright worrying as the Province seems to have its priorities and alarmingly its numbers wildly confused.
There were a few promising moves such as controlling skyrocketing wages, and another pension review – the third in recent years. Wage controls will help address indirectly the pension situation but it fails to take any significant direct action on pensions. The budget speaks of balancing liabilities between workers and taxpayers, but the details don’t support real change.
Dwight Duncan’s budget recommendations amount to nothing more than lip service to fixing one of Ontario’s biggest financial fiascos. Consider the underlying principles that have caused these massive pension funds to be short billions of dollars – a shortfall that the Province has been quietly funding for years with additional taxpayer contributions, despite the problem being evident to pension fund managers for over a decade now.
Let’s look at some examples.
A fully qualified pension pays a public sector retiree 70% of their highest average salary. According to the Sunshine List there were more than 11,000 provincial employees earning more than $145,000 which will give these lucky pension lottery winners a lifetime pension, including CPP, starting in excess of $100,000 a year or just short of $2,000 a week. Ontario Lottery advertises its Cash For Life prize of $2,000 a week; become a government employee instead. Better than the lottery, pensions are indexed and in 15 years will have risen by another 32%.
The World’s Highest Paid Public Servants:
Ontario has the second highest paid teachers in the world, behind only Luxembourg as ranked by the OECD. We also pay police officers the best in the world as headlined recently in the Globe and Mail. Our university professors ranked #1 in the world, as disclosed in a report by the Center for International Higher Education.
Ontario could have taken the example of MIT. The world’s top-ranked university by performance it has converted all future staff to a 401K plan, the equivalent to Canada’s RRSP. Better yet let’s bring all public sector employees into the new Pooled Registered Pension Plan, which was just passed into legislation, designed for the peons outside of the public sector.
In January a DBRS ratings report titled The Next Big Test for Universities showed that universities pension costs had ballooned from approximately $680 million in 2008 to $3.2 billion in 2011. The highest paid professors in the world also have the highest pension in the world. Other than pooling these losses together, how did the Province miss mentioning a problem this big in their budget analysis?
Current Costs Understated
The numbers that the Province did release in the budget show pension costs rising by 70% in just five years. These numbers are misleading. For instance, the table in the budget called Historical and Projected Pension Expense shows the contribution into Ontario Teachers at $522 million. This is only the extra payments taxpayers have committed to shore up the $17 billion shortfall in the plan.
The table omitted the regular annual contributions by taxpayers which were $1.28 billion in 2010. Alarmingly it shows the extra payments increasing to $1.2 billion by 2013-14. Based on the omission of the regular taxpayer payments the pension contributions will be about double those included in the budget report in much less than 5 years.
Despite lots of huffing and puffing by the Province suggesting they have addressed the pension problem these “tough and sweeping changes” are merely smoke and mirrors to deflect attention. Duncan must hope that the average taxpayer – and the media – will fall for this bluff and move on to other issues.
At Fair Pensions For All, we will continue to call on our elected representatives to address the real issues and come clean on pensions so that the bill left for taxpayers and future generations can once again make our province a leader in Canada and the world.
Written By Bill Tufts, Founder, Fair Pensions For All