Canada is seeing a striking discrepancy in pension benefits between public and private employees, a trend that threatens to create two classes of retirees, a new report argues.
Two-thirds of Canadians working in the private sector, or 80% of the country’s employees, do not have a company pension plan, according to a report by the Canadian Federation of Independent Business (CFIB), called Canada’s Two-tier Retirement. In contrast, 87% of public servants, who make up 20% of the country’s workforce, have a workplace pension plan, which, in most cases, guarantees the benefit no matter what.
To replace 70% of their working income in retirement, federal government employees currently contribute about 7% of their salary, the report shows. To achieve the same goal, private sector workers would have to contribute up to 21% of their income.
The report illustrates this point with two fictional characters, Mary, a public worker, and Jane, an employee in the private sector. They start working at the same time, earning the exact same annual salary over 35 years and making the same pension contributions.
However, by the time they both retire in 2029 at age 65, Jane will have saved only $605,000 for retirement, while Mary will have accumulated about $1.38 million. The estimated difference of $776,000 is due to the fact that Mary receives greater contributions from her public sector employer (the taxpayer)—and she benefits from a DB arrangement that guarantees her benefits even if her pension plan doesn’t perform well.
“Governments are doing a huge disservice to the majority of taxpayers by permitting these disparities to grow,” says Plamen Petkov, author of the report and the CFIB’s Ontario director. “It’s time they took action to address the unfair gap between public and private sector retirement benefits.”
The study also shows that the average public sector employee retires at 61, while a private sector worker retires at 63 and a business owner at 66.
The report calls for reforms such as eliminating early retirement, increasing the sustainability of pensions for civil servants, rejecting Canada/Quebec Pension Plan increases and adding new retirement savings options for Canadians, such as pooled registered pension plans.
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