Despite the recent changes to public pension plans for members of parliament and other federal public servants, a new paper from the C.D. Howe is saying these changes aren’t enough.
Ottawa’s Pension Abyss: The Rapid Hidden Growth of Federal-Employee Retirement Liabilities, by William B.P. Robson, claims the accumulated unfunded liability of these plans, using fair value accounting, stood at $267 billion at the end of March 2012, almost $118 billion worse than shown in the public accounts.
“Rates of return on investment are much lower than they used to be,” says Robson, President and CEO of the C.D. Howe Institute. “So achieving a given income in retirement now requires much more saving. But while RRSPs and defined contribution pension plans will pay whatever they can, and target benefit pension plans can adjust benefits, defined-benefit pension plans have massive deficits. None are worse than the DB plans for federal employees,” he says.
Robson emphasizes federal government financial reports do not use actual market yields to calculate their liabilities, but assume higher rates of return. Because federal pension promises are guaranteed by taxpayers and indexed to inflation, the appropriate yield is the one available on federal-government real-return bonds.
“The recent reforms were a small step in the right direction,” Robson says. “But they still leave taxpayers paying by far the greatest part of the annual cost of pensions,” he says.