Pensions for public sector out of whack

Generational fairness and Old Age Security

By Laura Jones: As governments across Canada struggle to get their fiscal houses in order, it’s becoming increasingly clear that spending on public-sector wages and benefits is neither fair nor sustainable.

The C.D. Howe Institute estimates that unfunded public-sector pension liabilities total more than $200 billion for the federal public sector alone. Based on census data, the Canadian Federation of Independent Business has estimated that wages and benefits in the federal public sector are 40 per cent more than equivalent jobs in the private sector.

Something you may not know about, the “bridge benefit”, is a good example of the unsustainable and unfair compensation practices in the public sector.

If you’re in the private sec-tor, you’re eligible to start collecting Canada Pension Plan benefits at age 65. You have the option of starting to collect benefits as early as age 60, but your benefit cheques will be lower as you will be collecting for longer.

In the federal public sector, the “bridge benefit” means you can retire and start collecting your public sector pension and an amount equivalent to your CPP as early as age 55. Here’s how the government describes it to civil servants: “Your total pension income (public-service lifetime pension plus your CPP or QPP) at age 65 will be approximately the same amount you received from the lifetime pension and bridge benefit before age 65.”

Aren’t public-sector pensions generous enough without adding “bridge benefits” that don’t exist in the private sector? In principle, the wage-and-benefits package of a public-sector employee should be no higher than a private-sector equivalent job. Without the private sector generating wealth there wouldn’t be taxes to support the public sector.

In reality, we have a two-tiered compensation system. Do the same job in the public sector and you can earn more, take more time off, and retire earlier with a bigger pension.

This is not a problem that can be fixed overnight. Nor should it be fixed in a way that is unfair to existing public sector employees. But some policy changes are in order.

Two budgets ago, Ottawa took a good first step. It eliminated the provision that gave federal employees severance pay for quitting their jobs. More changes were promised in the last federal budget.

Eliminating the bridge benefit would be a good next step. Putting new public-sector employees on compensation plans that compare more fairly with the private sector is another obvious thing to do.

One of my colleagues recently pointed out the pain of regret is far worse than the pain of discipline. Having public-sector compensation wildly out of whack with the private sector is a problem that calls for discipline now before we feel the pain of regret when we start looking like Greece.

Laura Jones, Sr. Vice-President Research, Economics & Western Canada with the Canadian Federation of Independent Business may be reached for comment at 604 684-5325 or msbc@cfib.ca