Editor’s Note: In the last edition of CARP Action Online we published a column by noted pension analyst James Pierlot. One of our readers disagreed with Mr. Pierlot’s thesis and issued us a challenge to publish his response to the column. Given that this person raised some worthwhile questions, we accepted – but not without giving Mr. Pierlot the chance to respond to his critic. Below is the anonymous and vigilant CARP Action Online reader’s letter with Mr. Pierlot’s responses in italics.
Reader:What Mr. James Pierlot’s article (most unfortunately!) fails to mention is that the public servants’ average salary is approx. 20% less than the pay of an equivalent job in the private sector. I happen to know, I am a public servant for the last 12 years. But having spent all my previous career in the private sector, I am fully aware of the differences. Hence the governments (federal, provincial) had to develop other incentives in order to enhance their recruiting chances – the major incentive being their pension plans.
Pierlot: It is often suggested that public sector workers earn lower wages than their private sector counterparts for similar work, and that public sector pensions are (and should be) better because public sector wages are lower than in the private sector. Perhaps public sector wages are lower in some lines of work, but according to a 2006 Treasury Board of Canada study, public sector workers actually enjoy a slight wage premium compared to private sector workers and their wages have risen faster than in the private sector.
However, whether wages are higher or lower in the public sector is really not relevant to the question of equal access to saving room. There is no good reason why public sector workers should have a greater opportunity to accumulate pensions than workers in the private sector. I do not suggest, and never have suggested, that public sector pensions should be cut back. Indeed, I argue for uniform retirement savings limits that apply to everyone equally. It’s great that public sector employees have such good pensions. My core argument is that there is serious unfairness in the pension system, and I use the value of public sector pensions as a benchmark for advocating a universal savings limit that will allow both public and private sector workers to accumulate good pensions. I don’t see how anyone can reasonably object to that.
Reader: Another dangerous fallacy put forward by Mr.Pierlot is the value of a government pension: he illustrates his computation with “a public sector couple earning $80,000 each after a 30-year career”! Well, calling it “fallacy” I guess it was rather mild: it’s a brazen misrepresentation! An $80,000 yearly salary in the public service is not the norm, but the rather the very seldom exception. And having a couple, both working in the public sector for this kind of money is really of the domain of Mr.Pierlot’s rich imagination! In the federal public service the pension (also called the “superannuation”) is computed at 2% per year from the average of the best 5 years worked for the federal government, limited to a maximum of 35 years. Again, this structure is obviously designed to retain a valuable employee for the longest time possible. However, most of the public servants very rarely reach the magic service figure of 35 years: the rule is that in order to qualify for a professional position in the public service a substantial prior experience is required; hence the candidate has to acquire it in the private sector.