According to the report, an early retirement trend showing a significant gap between the average retirement age of public employees and those in the private sector is caused in part by public employees’ ability to accumulate more retirement savings more quickly. The report said only about 50% of Canadian tax filers age 25 – 64 save through some type of private pension plan and the rest rely on the public pension system or Old Age Security to provide income during their retirement.
The CFIB said, in 2003, the Registered Pension Plan (RPP) coverage rate in the private sector was 27%, while the RPP coverage rate in the public sector was 86%. In addition, a previous CFIB study showed that for all levels of government, paid non-wage benefits, which represent in aggregate employer pension contributions, insurance premiums, etc., are far greater in the public sector than in the private sector, the report said.
One issue causing an increasing gap between retirement savings among private sector employees versus public sector employees is the disappearance of defined benefit (DB) plans offered in the private sector while almost all pension plans in the public sector are DB plans – similar to the U.S. trend. The report said in Canada from 1992 to 2003 the DB coverage rate declined from 44% to 34% of the workforce, 77% of which occurred in the private sector.
DB funding issues similar to those in the U.S. are also a problem in Canada. “A report in 2004 by the Certified General Accountants Association of Canada (CGA) estimated that more than half of the DB plans in Canada had a funding deficit, and in total the shortfall was $160 billion at the end of 2003,” the CFIB document said.
The business group concluded, “There is no valid reason why Canadian taxpayers are on the hook for public sector pension plans when in fact half of the Canadians working in the private sector will not even benefit from any private pension plan upon retirement. The unfairness has gone on long enough,” and gave recommendations for the foundation of pension policy reform, including:
- The taxpayer should not be the default go-to-mechanism to fund pension plan shortfalls, either in the private sector or in the public sector.
- Transparency, accountability and consistency need to be instituted in accounting and actuarial practices for evaluating pension shortfalls.
- Pension plan surpluses should not automatically be allocated towards increasing pension benefits; stability and spending restraint are needed.
- The overall objective of any pension policy reform should be to level the playing field between the treatment of retirement savings for public and private sector individuals.
The CFIB report is here .