Government wading into rough political waters by tinkering with pension plans
Common sense dictates that when you can’t afford something, you have to stop paying for it. That’s basically what government officials said Tuesday while announcing plans to reform provincial public sector pensions.
Premier Robert Ghiz says changing demographics and the global economic downturn have placed a strain on the pension plans and P.E.I. needs to do something to make them more sustainable and affordable.
One change announced Tuesday is the scrapping of guaranteed cost-of-living increases. Beginning in 2017, the increases will be tied to the pension fund’s ability to pay. Another change includes calculating pensions earned by current employees using an average of their indexed annual earnings.
“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,” said Mr. Ghiz.
Standing beside the premier, Finance Minister Wes Sheridan said pensioners may not see any indexing if the pension plan performs poorly. But he’s optimistic retirees will receive cost-of-living increases every four out of five years on average under the new plan — if markets perform relatively well.
In order to help ensure the plan does deliver, Sheridan has pledged a special payment of $25 million into the pension fund every year for the next 20 years. This, along with a lowering of expected market gains, will see the province’s two pension plans funded to approximately 120 per cent. As long as they remain funded above 110 per cent, benefits will continue to be indexed, the finance minister said.
This is scary stuff on two fronts. In terms of compassion, it’s entirely understandable the changes will cause serious angst among pensioners and public sector workers looking into their future retirement.
And the move could also become scary for the Liberals, especially in a province where the phrase “7.5” means so much. Liberals are still feeling the sting of a decision taken by a Liberal government headed by Catherine Callbeck in the mid-1990s. That government rolled back a union contract and ordered a 7.5 per cent cut in public sector salaries.
That nearly 20-year-old black eye no doubt came to the mind of many Liberals on Tuesday when Mr. Ghiz and Mr. Sheridan announced the pension changes. Without a doubt this week’s announcement will result in the Liberals taking a political hit, a much greater one, in fact, than anything the opposition parties have been able to muster against the government the past many months.
Naturally, the public sector unions are upset. Debbie Boyver, president of the Union of Public Sector Employees, says the changes could result in retirees receiving 30 to 50 per cent less in their pension plans, according to estimates provided by an actuarial from Ontario retained by UPSE.
Not only are unions upset with the speed of the changes, they are also frustrated with Mr. Ghiz. In a letter penned to UPSE during the 2011 election campaign, he promised “no changes would be made to the pension plan without concurrence” from the union. The premier defended his flip-flop this week.
“. . . I have a responsibility as premier to make sure that . . . I protect the pensions that are out there and that I protect the taxpayers.”
The fact Mr. Ghiz and his Liberal government are willing to tackle such a political hot potato is likely indicative of how serious the situation is when it comes to the province’s pensions plans. It also doesn’t hurt that they are taking care of a dirty political job at a time the opposition is in disarray. But if the 7.5 controversy proved anything, it is that voters have long memories.