Good morning. Thank you for having me out. It's nice to be here with this group and to see you going about your important business for the country.
I'm from Fair Pensions for All. I work as an independent employee benefits consultant for generally small and medium-sized business. Over the past several years I've been an advocate looking into public sector pensions.
The system of pensions that has been developed for the Canadian public sector has been developed with the idealistic goal that public sector workers in Canada should have a disposable income close to their final salaries. The system has turned out to be a retirement bonanza for public sector employees. However, with today's current demographic reality, the pension system that is based on final salary is no longer sustainable. Successive governments have failed to make necessary changes to ensure that the system will be sustained over the long term.
With pension shortfalls in most public sector pensions across Canada, long-term solvency is in doubt. Public sector employees might appear to have little incentive to push for reforms, yet they will pay a price for inaction. Doing nothing to control current pension obligations will cost public sector employees everything.
The current system is providing employees with pensions for longer than many will have worked over the course of their lifetimes. As well, many retire with a higher disposable income than they had over the greater part of their working careers. Options need to be examined that provide for relief for taxpayers and at the same time provide for a reasonable retirement plan for public sector employees.
Public sector pensions have traditionally been defined benefit pensions. This is consistent across Canada and across the western world. In the past decade, these pensions have started to create serious financial distress for many levels of government. Canada is no exception.
There has been a serious lack of discussion in Canada about public sector pension reform, but other governments have begun to address the issue. The U.K., California, and Rhode Island this year have finished in-depth reports to uncover systemic problems in public sector pensions and identify the best options to correct pension-related problems going forward.
The pension system in Canada is at risk, as was cited in the recent Quebec budget in the 2011 report called A Stronger Retirement Income System. The report investigated the Québec Pension Plan system, which is an identical mirror to the CPP program, but had some relevant points that applied to the public sector pension system as well.
There are several key risks that are due to a few key factors, to quote from the Quebec pension report:
The rapid increase in the number of people age 65 or over combined with improved life expectancy will generate significant financial pressure on pension plans that not only will have to pay a pension to more retirees but also have to pay these pensions over a longer period. This additional financial burden will be accentuated by a reduction in the number of individuals of working age who can contribute to pension plans.
Governments across Canada have four choices: they can change pension provisions going forward; they can raise additional revenues to meet these obligations, which we would call taxes; they can cut spending on other government goods and services to meet these obligations; and they can increase government borrowing.
These are hard choices, but the government has to face them and decide. To date, the status quo has been to make cuts in spending, increase taxes, and raise borrowing to cover public sector pension costs.
We urge the government to reform public sector pensions now.
Thank you.