Impossible to predict anyone’s pension.
December 16, 2013
It is very difficult to say what even the core pension entitlement will be under this new Act, since everyone’s precise circumstances will differ. However it is safe to say that for people on a fairly standard career path, the core pension benefit they will earn will be about 60% of what they would have been entitled to under the former pension plan.
Beyond that, the actual pension employees will be entitled to will be impossible to accurately predict. They will be entitled to something more than that core amount, based on a formula, when the plan can afford to top up their accumulation of pension. No one, not the union nor the employer nor the plan administrators, will be able to safely say “When you retire this is what your pensionwill be.” There are simply too many unknowable variables.
It is safe to say with near total certainty, that almost everyone who retires under this new plan will retire with a lower pension that they would have earned under the former pension plan.
Beyond that, all we can say is that pensioners will get, on a very rough average, about 60% of what they would have gotten under the former pension plan, plus some more. How much more will be impossible to forecast.
People who work their entire careers for the government, who spend the last few years working side by side for the same salary, will retire with different pensions.
The only ones who pretend to be able to make a reasonable guess about the actual value of pensions under this new plan, are the company that sold the government on this new plan. They claim to have computer modelling that allows them to pretend that their guess is actually a prediction. Since they won't share their modelling with anyone, we have no reason to believe them, and in any event all they can do at best is talk about likelihoods, not what actually will happen. They simply want to make a lot of money providing their service to the government, and so they pretend that they are offering science because they use a computer.
This new plan cannot work for some.
It is important to note that this plan can only offer anything even close to their former pension, to people who have that standard career path.
Anyone who works for several years at a lower salary and then gets promoted or moves to a higher paying job cannot receive a pension, under this new plan, that reflects their pay on retirement. Their career average will include all the years at low pay and their pension will be lower.
This is especially true if someone moves into a higher paying job in their last five to ten years of work. Their total pension under this new plan will be much less than the former plan would have provided. And if a government negotiates or legislates a wage freeze, or limits wage increases to a very low percentage for a time, that will automatically mean the lowering of every employees' pension on their eventual retirement, because that will permanently lower the average earnings in the careers of everyone affected.
Playing one generation off against another.
A second major concern is that the new plan will, when it’s affordable, provide two types of indexing. People who have already retired will be, under some circumstances, entitled to have their pension increased if inflation eats away the value of their pension – but only if the fund can afford it.
As well, people still working will be entitled to have the amount they earn in their pension increased above the core, above that average of some 60% of the former pension – but only if the fund can afford it. It’s crucial that this top up occur because without that adjustment people will retire with a totally inferior pension.
Neither group will get anything indexed unless the plan is running a surplus – there are no promises even on this basic point.
But both of those adjustments come from the same fund. How will one fund cover two different groups, both pensioners and people still working?
The legislation seems to say that the clear priority is to increase the pension earnings of those still working, and that pensioners will only get an adjustment to their pensions if there is enough money left over in the fund.
The legislation seems to say that the clear priority is to increase the pension earnings of those still working, and that pensioners will only get an adjustment to their pensions if there is enough money left over in the fund.If inflation is eating up the value of pensions, that won't be addressed if the fund doesn't have enough of a surplus to cover both the need to make pensions a bit more viable for those still working, and those already on pension.
And while this will mean the pensions of those still working will be a bit closer to the pension they would have earned under the old plan, they too will be hurt when they retire and there isn't enough money to cover the erosion of their pension by inflation.
There are of course other detailed problems with this new plan. But these two fundamental concerns make it a totally unjustified attack on the right of public sector employees in PEI to a predictable retirement income.
A final point. The government is saying that when it comes to pensions, they will put a certain amount aside and retirees will be entitled to whatever that amount can provide in any given year.
It would be interesting to see the reaction if the government decided to lease office space on that basis. The lease wouldn't have a set rate; the actual lease payment would depend on what the government put aside that year for rent.
And suppliers of cars, or office equipment, or anything else would be paid, not based on a set cost, but based on what was available that year.
That would clearly not be acceptable. Why should retirement incomes be any different?
This new plan is a major step backward for public sector pensions in PEI. The government is not being truthful if they claim anything else.