The Canada Public-Sector Pension Bubble

Posted by Québec de Droite in , , , , on samedi 18 décembre 2010

Il y a une Joke sur les actuaires, ‘dis-moi quel chiffre que tu veux obtenir, et je m’arrange pour l’obtenir’.

Vous savez tous, que les fonds pensions du secteur public sont insolvables, par contre vous avez deux entités qui refusent de l’admettre.

·         Les syndicats qui veulent que le fardeau de l’insolvabilité passe sur le dos du peuple.

·         Et les politiciens qui couchent avec les syndicats.

Par contre, dans d’autres pays on commence à l’admettre et à corriger le tir, il y a-t-il quelqu’un d’assez responsable politiquement pour commencer à discuter du problème, ou l'on va attendre d’être au pied du mur, et là le pauvre fonctionnaire, va se retrouver à une réduction massive de ces prestations.

Si au moins, on avait la décence d’appliquer les mêmes règles actuaires que le secteur privé, ça serait un début.

Voici une autre étude qui démontre l’ampleur du déficit actuariel des fonds du secteur public du Canada.

Extrait de: The Public-Sector Pension Bubble: Time to Confront the Unmeasured Cost of Ottawa’s Pensions, Alexandre Laurin and William Robson, C.D. Howe, November 11, 2010

Ø  Fair-value accounting reveals Ottawa’s employee pension obligations to be larger and more volatile than they appear, a problem shared by European and US state governments.

Ø  The federal government’s net pension obligation under the fair-value approach stands at almost $208 billion – some $65 billion larger than reported in the Public Accounts; to keep pace with benefit accruals and stop the gap from growing, contributions in the latest fiscal year would have had to be almost double what was actually paid in.

Ø  Taxpayers risk finding that responsibility to back-fill the funding hole falls to them – and potentially finding that fears of sovereign defaults by governments with opaque balance sheets and big exposure to public employee pensions drive up the cost of borrowing.

Government employee pensions are rapidly emerging as a major fiscal problem. Reducing these obligations is a priority for heavily indebted European countries, such as the United Kingdom, where a recent fair-value estimate of the unfunded obligations of national government pensions (Record 2009) put them at £1.1 trillion – some 40 percent higher than official figures.

A similar look at US state governments puts their unfunded pension liabilities at close to $3 trillion, more than twice their reported value (Novy-Marx and Rauh 2010).

A recent issue of The Economist highlighted “the public-sector pensions scandal” on its cover, and speculated that US sovereign defaults might spark the next financial crisis.

·         In the private sector, pension plan liabilities must be measured and funded on a “solvency” basis, using the market value of assets and discounting liabilities using yields based on long-term Government of Canada bonds.

·         Taking the same fair-value approach to public-sector plans typically reveals their costs – and hence the exposure of taxpayers, who may have to cover unfunded obligations – to be more volatile and much higher than government financial statements show.

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The government’s net pension obligation under the fair-value approach thus stands at almost $208 billion – some $65 billion larger than reported in the Public Accounts. This raises the net public debt by an equivalent amount.

 

And, because the gap between reported and fair-value pension obligations has grown over time (Figure 1), these adjustments also change the annual budget balances.

 

The fair-value approach to pensions, by contrast, shows a cumulative deficit over that period of $72 billion. In 2009/10 alone, the annual deficit would have been not the $55 billion reported, but $63 billion.

Sensitivities provided in the Chief Actuary’s most recent valuations of the PS, RCMP and CF plans suggest that backing their promises with RRBs would require eye-popping contribution rates: 35 percent, 41 percent and 42 percent of pay respectively.

Actual contributions to these plans are currently 19 percent, 22 percent and 21 percent respectively (OCA 2009a, 2009b, 2009c), of which more than two-thirds is already borne by the employer – that is, taxpayers. So simply to keep pace with benefit accruals and stop the gap from growing, contributions in the latest fiscal year would have had to be almost double what was actually paid in, and filling that entire gap would require the federal government to borrow or otherwise find an additional $65 billion over and above the $143 billion unfunded liabilities already recognized in Canada’s national debt.

Ø  For federal employees, the gap represents a risk if future taxpayers refuse to fill the hole left by inadequate contributions.

Taxpayers face two types of risks.

1)      One is obvious: responsibility to back-fill the funding hole will fall to them.

2)      The other risk is more speculative: as debt levels rise, fears of sovereign defaults will likely drive up the cost of borrowing – for all governments, but particularly for those with opaque balance sheets and big exposure to public employee pensions. Europe’s less fiscally healthy governments now face double-digit borrowing costs and painful budgetary consolidations.

Fair-value reporting of Ottawa’s pension obligations, ideally in conjunction with supporting change in Canada’s public sector accounting standards, plus a credible plan to manage the costs revealed by a proper measurement of pension liabilities, would help keep Canada off that list.

 

This entry was posted on samedi 18 décembre 2010 at 11:27 and is filed under , , , , . You can follow any responses to this entry through the RSS 2.0. You can leave a response.