Wes Sheridan, Minister of Finance, Energy, and Municipal Affairs, delivers the 2013/14 provincial budget in the Legislative Assembly as Carolyn Bertram, Speaker of the House, looks on.
The P.E.I. government will eliminate guaranteed cost of living increases as part of a major overhaul of its public sector pension plans.
Premier Robert Ghiz says the reforms are necessary to avoid hundreds of millions in pension liabilities that would have to be shouldered by taxpayers.
“Islanders are living longer and retiring sooner, and this means our pension plans are costing a great deal more than they have in the past,” Ghiz said during a news conference this afternoon.
The reforms look to address this. The biggest change is an elimination of guaranteed cost of living increases for pension payments, a practice known as indexing.
Cost of living increases, or indexing, will continue for the next three years, but beginning in 2017 will only be awarded if the pension plans perform well.
Finance Minister Wes Sheridan admits this does introduce a risk to future increases of pension benefits.
“We have to remove the (indexing) guarantee,” Sheridan said.
“It takes away the full risk that’s associated with the province today and change the way that we will approach it into the future.”
He pointed to an estimated $400 million liability projected for 2014 in the pension fund that would have to be paid out by the province if these changes are not made.
But finance experts in his department and with the actuarial firm Morneau and Shepell have determined pensioners will likely receive cost of living increases every four out of five years on average under the province's new plan.
In order to help ensure the plan does perform well, and thus pay out indexing to pensioners, the province has pledged an annual $25 million special payment into the pension fund for the next 20 years.
“We’re going to give these plans a running start to ensure they have a very high probability of paying out indexing,” Sheridan said.
Another change will see the age at which an unreduced pension is available raised from 60 to 62.
The way in which pension earnings are calculated will also change. Instead of using the ‘best three’ or the ‘best five’ years, after 2013 pension salary will be calculated by averaging all of an employee’s total earnings, indexed to reflect present day values.
Two of the province’s five unions, including the biggest civil service union in the province, are bristling over the reforms.
The Union of Public Sector Employees (UPSE) and the Canadian Union of Public Employees (CUPE) say they are not on side and are upset with the way government is pushing them ahead so quickly.
The two unions recently presented government with a counter proposal to reform the province’s pension plan.
“We recognize there is a serious problem with the pension fund,” said Bill MacKinnon of CUPE.
But the province's reforms will see the pension plan funded to 120 per cent, rather than the current legislated commitment of 90 per cent. This, along with a lowering of expected gains, is how the fund is expected to perform well and produce the necessary returns.
"We think this is too drastic, we think this is unnecessary to go this far and we’re going to tell our members that,” MacKinnon said.
UPSE likewise is not happy. It has scheduled a series of meetings across the province this week to present its concerns with the government’s plan to its members.
Ghiz said he knows some unions will be upset, but says he also hears regularly from Islanders outside the civil service who are upset over the hundreds of millions in tax dollars that have gone to cover pension losses.
“As premier it’s my job to do the best I can, and I think in this are here we’ve tried to find the best, balanced solution and like any decision we make, not everyone is going to agree.”
Ghiz added that he has sent a letter to the Indemnities and Allowances Commission, which dictates MLA salaries and benefits, requesting it to make the same adjustments to the MLA pension plan.
More to come, including reaction from UPSE and the Opposition.