The Province of Newfoundland and Labrador recently announced that its pension crisis is solved, and that it’s on the path to good health. Fair Pensions for All and Mises Canada decided to investigate and were alarmed at what they found. Although some of the pension tension has been relieved, actions taken provide only very minor relief. The additional bailout announced of $2.62 billion does absolutely nothing to prevent further shortfall from happening again, and does not protect tax payers and future public sector workers.
“Bailouts for public sector pensions and retiree benefits have been committed to over $10 billion over the last decade, and that doesn’t include the annual regular payments that have been made” says Bill Tufts who is the Executive Director for Fair Pensions for All
The pension system across Canada is teetering on the brink of collapse. In 2013, the province was $5.1 billion short on its promises to government workers. This was in addition to payments over the past decade the province spent $3 billion directly bailing out the province’s pension plans, and another $2 billion for retiree health benefits.
The total cash bailouts future promises to government employee pensions and retiree benefits amount to over $ 10 Billion.
This year alone, total additional expenditures, were $556 million for pensions and $216 million for retiree benefits his year. “To put this into perspective, the province is spending the same amount of money on people who are no longer working, as it does on colleges and universities” says Bill Tufts
“The scariest part of all of this, is that the pension shortfalls can only be fixed by an annual guaranteed return of 7.25% for the next several decades, and if there isn’t an increase in life expectancy. If the rates of return are any lower, the shortfall will grow substantially. With the current economic environment, and the bond market providing negative returns, 7.25% is clearly impossible” says Vice President of Mises Canada David Clement
So what is the solution?
Newfoundland should look to the City of Saint John, who solved its pension troubles by converting them to defined contribution plans. This process protects tax payers, and most importantly ensures that the pension system is still viable for the future generation of public workers who will depend on it.
