Third Time’s a Charm for Cutbacks to Pensions?

This article was published by Pension Expert Leo Kolivakis on March 23rd 2012 via his popular blog “Pension Pulse”.  To see this article and other related articles on on Mr. Kolivakis’ blog, please  click here.

Mark Kennedy of the National Post reports, Tories poised to launch daring cutbacks to public pensions in federal budget:

Prime Minister Stephen Harper’s Conservatives, emboldened by the power of a majority government, are poised to launch daring cutbacks to public pensions that could spark inter-generational tension among Canadians.With Finance Minister Jim Flaherty set to reveal the details in his budget next Thursday, the outlines of what likely lies ahead are becoming plain:

• The backbone of the pension system — Old Age Security (OAS) —will be slashed for future seniors, likely by extending the age of eligibility to 67 from 65. The purpose is twofold: Keep Canadians in the workforce longer to boost the economy and provide taxes to government and; limit the costs of the OAS system by ensuring there are fewer beneficiaries. The big question Canadians will learn in the budget: When do the cutbacks start — expectations are it won’t be for another decade — and how gradually are they to be implemented?

• The pension plan for members of Parliament — long criticized as “gold-plated” because of its generous benefits — will be scaled back. This will provide political cover for the governing Tories during the expected OAS public controversy so that they can claim they are also making personal sacrifices. The key question will be whether the changes amount to tinkering — MPs must now serve six years to qualify, and they can start drawing benefits at age 55 — or if the plan is blown up and turned into a private pension scheme that costs the taxpayers significantly less.

• The pension plan for public servants also may be ripe for change. A recent report by the C.D. Howe Institute concluded that if public-sector pension plans used market yields to calculate their liabilities, Ottawa’s unfunded liability would be $227 billion. The government began dropping hints this winter that it is reviewing the pension scheme to ensure it is fair to both employees and “taxpayers” — prompting speculation that Flaherty will announce that public servants will see their contribution rates, set for 40 per cent in 2013, ultimately rise to 50 per cent.