Hey there, time traveller!
This article was published 11/5/2014 (1114 days ago), so information in it may no longer be current.
Canada's auditor general, Michael Ferguson, has sounded an alarm on the rising costs of public pension plans, warning the federal government may not be adequately planning for the long-term impact of economic and demographic forces on the plans. Further, Mr. Ferguson wanted finer detail from the government to assess whether the plans were sustainable; in other words, if the public purse could actually afford the government's obligations to the plans. The government said that information was confidential.
That is disconcerting. Ultimately it is the taxpayer who carries the obligation to fund what the government owes to ensure promised benefits to its public servants and retirees. Mr. Ferguson outlined some of the potential factors that will increase those costs.
Public servants are retiring earlier and living longer. This, combined with the current stretch of years of low interest rates and low returns on investment, means much is owed to keep plans fully funded on an ongoing basis. The federal government will be looking at dumping in a lot more money in future years, or changing the terms of the plans to nip expenses.
Mr. Ferguson pointed out if life expectancy of public servants increases by just one year, government's total obligation increases by $4.2 billion, or three per cent. Payment of that amount would be spread over a number of years, but it is an illustration of how dramatically the numbers can move. Annually, Mr. Ferguson projected, federal spending on pensions could go from an expected $3.3 billion in 2017 to $13.5 billion in 2050, or 1.6 per cent of total program costs.
The Harper government has responded its recent moves to increase public servants' share of their pension costs to 50 per cent, along with pushing back the normal retirement age to 65, will see substantial savings. It believes its plans are sustainable and promised to try to release more information to prove it to the auditor general. Mr. Ferguson's performance audit concluded with a caution more changes might be needed to keep the plans safe and to protect the taxpayer's interest.
The federal discussion should turn Manitobans' attention to the risks to the provincial treasury, but there is much less information publicly available for such a discussion.
The provincial government's unfunded liability to pensions sits at about $1.8 billion, triggering a hike in contributions even while plans have been amended to include cost-of-living adjustment (this, as other provinces have curbed rich provisions, including the elimination of COLA in Ontario).
Mr. Ferguson's warning about the looming impact of early retirement and longevity is equally meaningful in this province where fewer public workers are paying in, while more retirees are drawing: There are 1.9 civil servants paying into the Civil Service Superannuation Fund for every retiree drawing pension. The ratio is even starker for teachers, at 1.2 teachers working for each retiree.
Manitoba's auditor general reported on the status of public pension unfunded liability in her March annual report, as part of the review of provincial financial statements, but the office has not conducted a performance audit of public pensions that could test for sustainability and risk to taxpayers.
Costs are rising as are risks. It is time Manitobans were given robust information on precisely how much liability they may be shouldering in future years, so the discussion on retirement benefits and entitlements can begin here, too.