TORONTO – Ontario can’t afford the generous retirement benefits collected by teachers, bureaucrats and other public sector workers that will end up costing taxpayers billions of dollars, the Progressive Conservatives said Monday.
Right now, many public sector workers are collecting more in retirement than they’ve put into their plans, Opposition Leader Tim Hudak said as he renewed his call for pension reform.
“In short, public sector pension liabilities are really the ticking time bomb when it comes to government finances in the province,” he said.
The governing Liberals should phase in a higher retirement age for those workers and move new public sector employees to defined contribution pension plans, rather than defined benefit plans, Hudak said.
Defined benefit plans provide guaranteed income and benefits for life upon retirement. Defined contribution plans set aside money that workers can draw on during retirement.
Hudak also wants pooled pension plans for private sector workers who don’t have a pension, which would not require employers to make any contributions.
The gap between what’s been promised under defined benefit plans and what’s available to pay for those benefits is widening, Hudak said. With a wave of baby boomers reaching retirement age, the estimated shortfall is about $100 billion.
If the Liberals don’t take action, taxpayers — including those with no pension — will have to make up the difference, he said.
“You have a choice,” Hudak said. “You can take this on, or you can take it out of hospitals and you can take it out of classrooms.”
Last year, economist Don Drummond recommended that the government raise the retirement age for public sector pension plans in a government-commissioned report that looked at ways to reduce Ontario’s $12-billion deficit without raising taxes.
In his report, Drummond said the typical teacher retires at 59, having worked for 26 years, and collects a pension for 30 years.
Hudak, who first raised the pension issue last November in one of his so-called “white papers,” said he’d try to negotiate the pension changes before resorting to legislation.
Premier Kathleen Wynne said her government is tackling the problem of pension shortfalls, which would require the province to make bigger contributions.
“Our government recently reached agreements with three public sector plans that freeze contribution rates for five years,” she said in the legislature.
“The agreements ensure that pension plans don’t add to employer and taxpayer costs when addressing a new funding shortfall, and in fact will mean cost avoidance of $1.5 billion over three years.”
The agreements include the Healthcare of Ontario Pension Plan, the Ontario Public Service Employees Union Pension Plan and the College of Applied Arts and Technology Pension Plan.
They’ve also reached a deal on the Ontario Teachers Pension Plan, which administers about $117 billion in assets.
But the investment returns in the fund haven’t been able to cover all the pension obligations which have been driven up by low interest rates, leaving a shortfall of about $9.6 billion.
The government isn’t looking at raising the retirement age from 65, said Darcy McNeill, a spokesman for Finance Minister Charles Sousa.
NDP Leader Andrea Horwath said she’d set up a province-wide pension plan that would be available to any employee who doesn’t have a workplace pension. Employers would contribute to the plan along with employees, who would receive a maximum benefit of $600 to $700 a month.
What Hudak is recommending puts retirement savings at risk by exposing them to market volatility, she said. When the stock market takes a nosedive, so do retirement savings.
“I don’t think that the answer is to have fewer people with secure pension plans,” Horwath said. “I think the answer is to have secure pension plans for more people.”
Ontario isn’t the only government grappling with pension plans. Ottawa has plans to increase the age of eligibility for Old Age Security and the Guaranteed Income Supplement to 67 from 65 in future years.
Note to readers: This is a corrected story. An earlier version quoted Finance Minister Charles Sousa as saying the government was looking at raising the retirement age. His spokesman later said that was not the case and explained Sousa misheard a reporter’s question.