Recent recommendations by the Newfoundland and Labrador Members’ Compensation Review Committee (MCRC) to overhaul recent MHA pension plans has prompted commentary on provincial pension policies. Despite this, little focus has been placed on the most pressing pension issue facing the province: unfunded pension liabilities for government workers and retirees.

The Newfoundland and Labrador Provincial Government’s employee pension plans are some of the least affordable in the country and directly burdens every single Newfoundlander and Labradorian. If meaningful reforms are not made, future generations of taxpayers will inevitably face greater tax increases and deeper cuts to public services for spending occurring now.

Previous attempts to close the funding gap have proven inadequate. Despite the provincial government already pouring $4.7 billion into various pension plans since 1997, a $5.5 billion shortfall existed by 2014 – a shortfall that must be covered by a combination of taxpayers’ money and employee contributions. Further, efforts of the previous Provincial Government to renegotiate the Public Service Pension Plan (PSPP) in 2014 are estimated to only eliminate $4 billion of unfunded liabilities in 30 years. This is sadly not a real solution to the problem, as the Provincial Government’s pension liabilities continue to increase, driving up yearly program expenditures while fiscal restraint is desperately needed.

This issue ultimately boils down to intergenerational fairness. The share of the province’s population over the age of 65 is rising sharply, while life expectancy continues to increase. And with fewer young people working, providing a smaller tax base for the provincial government to pay for these pension liabilities, serious reform must be considered.

It is therefore necessary for the province’s public employees to make additional concessions and negotiate more meaningful reform. The most obvious reform would be a shift towards a defined contribution plan for new employees, as recommended by the Association of Chartered Professional Accountants of Newfoundland and Labrador. Unlike private-sector employees, most of our province’s public employees continue to operate on a defined benefit plan – considered by some to be “gold-plated”, with one’s payout determined by the average salary of an employee’s best six years. The City of St. John’s has already implemented this reform and in doing so, eliminated their own pension crisis.

Calls for reform should not be seen as trying to diminish the value of the contribution of public employees to our society. Good salaries and benefits are important in attracting talented people to serve in public sector roles. However, failing to reform pensions now will make only make the problem worse, and hamper Newfoundland and Labrador’s long-term prosperity – mostly at the expense of younger generations who will likely never see these gold-plated pension benefits.

For more information:

 

 

Devin Drover – Regional Coordinator, Atlantic Canada

email: ddrover@generationscrewed.ca