The pension ponzi scheme

Je vous l’ai dit, les journalistes du ROC, ont plus de courage de parler de l’iniquité éhontée des fonds de pension du secteur public par rapport au peuple, que nos vieux journalistes québécois.

Je vous en prie, ayez un peu de courage, à moins que votre régime de prestation déterminée privé qui est d’ailleurs sous-capitalisé vous empêche de parler.

Ding, Ding, on se réveille !

Extrait de: The pension ponzi scheme, Jonathan Chevreau, Financial Post,  Oct 29, 2011

This column has long used the term “pension envy” to describe the great divide between the 20% minority of Canadians in cushy public-sector defined-benefit pensions and the rest of us hoping to retire on fluctuating RRSPs or defined-contribution pensions.

There were several signs this week that pension envy — or pension apartheid — is alive and well and likely to intensify as baby boomers start retiring, or try to.

On Wednesday, pension consultants Tower Watson said those with DC rather than DB pensions can expect a pension freedom age approaching age 67 — two years beyond the traditional retirement age. Meanwhile, Statistics Canada reported a 50-year-old Canadian worker can expect to work 16 more years, three years longer than in the 1990s. And Royal Bank of Canada said 57% of us have put no savings aside for a rainy day.

Ce qu’on essaie de vous dire, vous M. le peuple, vous allez travailler jusqu’à 67 ans, tandis que certains privilégiés vont prendre leurs retraites dix ans plus tôt,
payer par vous d’ailleurs.

Et que font nos politiciens? rien comme d’habitude, jusqu’au moment
que ça nous pète en pleine face.

Then I received a copy of a new book from Wiley Canada that explains why these trends are converging. Pension Ponzi by Lee Fairbanks and Fair Pensions for All’s Bill Tufts recaps how Canada’s public-sector unions won its members huge salaries “that far outstrip anything comparable in the private sector and incredibly generous pensions.”

The hard part to swallow is it’s the 80% of us outside this charmed circle (the authors dub it “the Bell Jar”) who are underwriting this sweetheart deal, or will be via future tax increases. The beneficiaries all rate chapters in the book: government workers and politicians, teachers, firefighters, police officers and the armed forces.

But the whole arrangement is likened to a “pension Ponzi scheme” that will eventually collapse, “as all Ponzi schemes eventually do.” Despite the complacency of those in the Bell Jar, Canada is a small country with a large ($1-trillion) public debt.

Exacte, souvent on indique le fédéral sans sort bien, on camoufle la réalité.

Si on  cumule toutes les dettes provinces et municipaux, on est aussi dans la merde, on a juste tendance à mieux le camoufler.

The authors expect the chickens to come home to roost, as they did in Ireland, Greece and elsewhere in the developed world.

It’s true some non-unionized private-sector workers still have DB pensions but these are rarely the Cadillac inflation-indexed plans unions negotiated for the public sector. And the trend  for large corporate employers is to close DB plans to new hires, as the country’s largest bank, RBC, recently announced it is doing.

Towers Watson says the steady shift from DB to DC plans means Canadians must work longer than hoped. DC pensions or RRSPs that behave similarly both lack the set or “defined” promise of a guaranteed monthly income in retirement — the defining characteristic of public-sector DB pensions.

In theory, DC plans and RRSPs might do well in protracted bull markets but the reality the past decade has been the opposite: Investors have endured two, if not three, bear markets in stocks while interest paid on fixed-income investments has remained stubbornly low. The result is what Towers Perrin terms a “double whammy” for workers not in DB plans.

You could argue all workers qualify for a government-provided DB pension in the form of the Canada Pension Plan (CPP). But the average annual CPP benefit is $5,919, compared to the average annual pension of $42,900 enjoyed by the Ontario Teachers’ Pension Plan (OTPP), a difference of seven times.

Tout cela aux frais aux du contribuable ordinaire, car un régime de prestations déterminées est avant tout un système pyramidal.

Here, I must confess to only muted pension envy, since my father received that teacher’s pension and my mother the survivor’s portion. Furthermore, my 20-year old daughter has taken a good look at teacher pensions and all those summers off and announced she will follow in her grandfather’s footsteps.

When I cast my envious eye at contemporaries now retired in their fifties, invariably they had joined DB pensions early in their careers and stuck it out. I know one charming couple already retired on TWO teacher pensions.

But it’s by no means certain all these pensions will be able to meet their obligations. The OTPP is $35-billion short while the Ontario Municipal Employees Retirement System (OMERS) is almost $9-billion short.

En plus, les déficits actuariels augmentent aussi rapidement
que l’irréalité économique de cette pensée magique.

Look no further than Greece to see how countries can default on public-sector paycheques and break pension promises.

Pension Ponzi closes with 10 suggestions for reform, like raising the retirement age to 65 for those in the Bell Jar, eliminating double-dipping and pension spiking, and turning DB plans into hybrids with DC components.

But the authors aren’t optimistic these reforms will change anything. They hedge their bets by suggesting readers protect themselves by joining the winning side and landing a government job themselves.

Seems my daughter has the right idea.