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Pension reform moving forward under protest

(Note: this article was published in the Daily Gleaner today)

Pension reform moving forward under protest
Chris Morris - Legislature Bureau 28 Mar 2013

FREDERICTON – The New Brunswick government is pushing ahead with pension reform in the public service despite push-back from retirees who believe the changes threaten their retirement security.

Finance Minister Blaine Higgs said Wednesday he believes better communication with the retirees may help sort out misunderstandings about what the shared-risk plan means for current public servants and for those who have retired and now are living on their government pensions.

“I think there is really a lot of misinformation about what the concerns are and what they really amount to,” Higgs said in an interview, addingthat he will not consider grandfathering retirees out of the pension reform.

“I mean, the guaranteed indexing is the big issue and currently in the private sector you wouldn’t have that sort of guaranteed indexing formula.The package that is being offered – the rate of returns, the program going forward – it is very reliable and it makes a lot of sense. I just think some of the hype and rhetoric has got out of hand. We need to be communicating more one to one and sit down and figure this out.”

Public sector retirees are raising concerns about the loss of guaranteed cost-of-living increases, the loss of the province as the sponsor and guarantor of the public sector plans and the possible reduction of base benefits, among other things.

“I don’t think it’s a matter of people don’t understand,” said retired civil servant Brian Steeves, a former economist with the province’s Finance Department.

“The problem is they don’t have enough information. There are no working papers made available, and there has been no report by the (pension reform) task force made available publicly. There is only partial information. There isn’t much beyond talking points. They describe the bare bones of the shared-risk plan but they do not provide enough information for public comment and analysis.”

Many of the retirees have accused the government of breaking a contract with them, and they say court action is a possibility.

Steeves said the province should have referred the matter to the courts for an opinion as to whether it has the authority to alter the retirees’ pensions in the manner proposed.

In this week’s provincial budget, Higgs described the public service plans as “dangerously underfunded and requiring millions of dollars or significant amendments to again become sustainable.”

He said the switch to the shared-risk model, based on the Dutch approach, is in the best interests of everyone.

However, the Dutch model may not be perfect.

Dutch administrators of the pension fund for government employees stated in a recent news release that pensions will be reduced by 0.5 per cent as of April 1, 2013.

And they said further reductions may be necessary.

“This is caused by the low interest rate and the increased life expectancy of the Dutch population,” Stichting Pensioenfonds ABP said in a news release.

“The Dutch life span has further increased, which affected the funding ratio by -1.8 per cent. ABP is considering a supplementary discount in 2014 unless the fund’s financial situation improves in the course of this year.”

New Brunswick retirees said this is alarming because they were assured cuts to base benefits would be an extremely rare occurrence and would be triggered only in conditions similar to those of the Great Depression.

“Now we see it may not be that rare an occurrence. It’s a major concern,” said Clifford Kennedy of the Pension Coalition of New Brunswick.

The New Brunswick Nurses Union, the NB Union, and hospital workers with the Canadian Union of Public Employees have adopted the model to date, as have the cities of Saint John and Fredericton.

Retired civil servants had guaranteed pensions, with taxpayers shoring up any shortfalls to their plans. They are the kind of defined-benefit plans that are becoming increasingly rare in private industry.

The shared-risk model means some benefits for government retirees could go down in the future if investments within the fund falter.

For instance, indexing, or cost-of-living increases, could be affected.

Premier David Alward has heavily promoted the shared-risk modelas a means to control expenses and keep costs reasonable for taxpayers while providing decent retirement benefits.