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Promises, promises: the pension problem - by Fred Donnelly



Recent proposals to solve the provincial government's pension problems by retroactively altering the benefits paid to retirees is bound to generate bitterness. Retirees, and I am one of these in that about 30 per cent of my income comes from the provincial pension, see this as a straight breach of contract matter.

The response of this group will be to sue. Additionally they will punish, at the next election, any party backing such retroactive changes. Ultimately some might leave the province over this issue. If a government can retroactively change a person's pension benefits, a large number of serious implications follow.

Allowing the government such a retroactive breach of contract will only invite future similar alterations. Moreover, other levels of government might get the same notion. To those who bear antipathy towards their fellow citizens employed in the New Brunswick civil service, consider the following: What would your reaction be if you found out the federal government was now going to start taxing withdrawals from your Tax Free Savings Account or changing the tax deduction status of your long ago contributions to your Registered Retirement Savings Plan? There would be outrage against such policies, and rightly so.

I fear the government of New Brunswick is feeding on a bitter hostility towards the civil service occupational group in this province. Perhaps the latter was reflected in the remark of a recent correspondent in the Telegraph-Journal that collecting a provincial pension was "like child abuse." The hateful venom contained in such a phrase is a matter of concern. It may be that those making these comments don't fully appreciate who is in the provincial pension scheme. In addition to the conventional hard-working civil servants, there are also the school teachers, museum staff, community college instructors and, for a while some university professors.

Those taking jobs in New Brunswick that had the provincial pension benefit [here I include myself] did so believing in the terms and conditions offered. In starting out in my career when I was a part of this pension plan, I noted the many occupations in the private-sector with higher pay than my own. I took consolation in my government-backed pension scheme as a partial compensation. I made my career decisions in good faith and this now seems to be an error on my part.

Moreover, there were many years I could not contribute to a RRSP on account of my contribution level to the provincial plan. If we are going to make retroactive adjustments in these matters, then am I not entitled to a retroactive adjustment to my RRSP contributions?

At the centre of the bitter opinions on this subject is the objection some people have to their taxes supporting a provincial obligation to pay pensions when they don't have such benefits. Their taxes also support the interest payments to the provincial creditors and they may not be in receipt of interest income. Why default only on pension obligations when the province could equally default on its bonds?

Allow me to answer my own question. New Brunswick cannot either wholly or partially default on its bonds without paying serious consequences. Our credit rating would be ruined and our costs of borrowing would soar to unmanageable heights. So, the discriminatory response of the government is to attack the beneficiaries of its pension plan, fellow citizens who have long contributed to building this province. While this"beggar thy neighbour" approach is shameful, there are other dimensions to the issue.

Let's first look at the source of government revenues. According to the current provincial budget figures, only 45.72 per cent of the revenue stream is derived from the provincial income tax. That's because New Brunswick gets 37.8 per cent of its budget from federal transfer payments and it also has some non-income tax sources of revenue. Undoubtedly, some of these revenues find their way to supporting the provincial pension plan obligations. Is there not a complaint here that might come from taxpayers in the wealthier provinces of their taxes propping up New Brunswick's finances including its pension scheme?

As to the notion that an individual might object to his taxes going to purposes he does not benefit from or endorse, I can only say: "Welcome to democracy." I have paid my taxes my entire working life to various governments whose policies I did not agree with in-whole or inpart. Those are the realities of political life as we know it. Who votes for the fiscally irresponsible tweedledum/tweedle-dee political parties who have ruled this province since Confederation?

Moreover, why single out the public sector in this regard? When I buy a consumer product, I contribute in some way to the private company's revenue stream, including its employee pension plan where such exists. I also contribute to the company's executive perks. Perhaps my purchase of gas or groceries or domestic appliances helps pay for someone's luxury box at a big league sports venue in another province. Should I bitterly complain as we don't have big league sports franchises in New Brunswick and I'm not a fan of professional sports?

In my opinion any solution to the provincial pension plan crisis must meet the following criteria.

1. Alterations to the plan must be made on a carry-forward basis, not on a retroactive one. Contractual obligations must be honoured. Any new terms of the pension plan must be offered upfront to those joining the civil service from this day forward. Included in such new terms must be an absolute ban on contribution holidays for all pension plans.

2. Attempts to solve the provincial financial problems must be broadly based and not single out one occupational segment of the population. If extra taxation is required, then it must be a carry-forward imposition on the income tax or a widely used commodity like gasoline.

3. All other options must be explored. The so-called pension crisis is really only a projection of demographic trends and returns on investments far into the future. It is based on actuarial assumptions that may or may not come to pass. Why instigate recessionary policies at this time for something that might happen in the distant future? A simple solution would be for the province to pass enabling legislation to create a Crown land reserve to guarantee to the provincial pension obligations. Crisis over. The worst that could happen is some Crown land might have to be sold off in the distant future. What would probably happen is that, over time, with improved economic conditions and new terms for the pension scheme, such lands would revert back to Crown status.

At the personal level, it is hard to convey my responses to this pension proposal. I am a single, fairly mobile individual who does not have to live in New Brunswick. If my pension benefits are retroactively diminished, I will ask myself a basic question: Do I want to live in a province whose government has reneged on a sacred promise on my pension and where some of my fellow citizens think after I worked here and raised a family over 33 years that one of my sources of income is "like child abuse?" I could move to small-town British Columbia where I also have family, where the weather is better and the provincial income tax rate is the lowest in Canada. New Brunswick can send my monthly pension payments to B.C. and, with it, all my future provincial income tax and sales taxes payments. You have to ask yourself a question: Will unfairly chiseling a piece from my pension be worth it?

One of the problems in this province is the exodus of people, especially young people, to other parts of Canada in search of jobs. The question for our provincial government is this: Do you want to add to the problem by creating another exodus of retirees? Well, do you? Fred Donnelly is a retired UNB professor whose contributions to the provincial pension plan predate 1994.