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MoneySense Magazine, September/October 2011
A civil servant’s sweet payoff
Check out the hefty pensions government workers get. Turns out the value of their golden handshakes is even higher than you think
Federal government worker
Average age at retirement: 58
Years of service: 26
Years collecting a pension: 27
Estimated value of pension at retirement: $560,000 to $660,000 (based on a projected real return of 2.8% to 4.3% a year)
Amount of pension currently contributed by the employee: 33%
Pension benefit is equivalent to what percentage of worker’s salary? 12% to 20%
RCMP employee
Average age at retirement: 54
Years of service: 31
Years collecting a pension: 32
Estimated value of pension at retirement: $820,000 to $990,000 (based on a projected real return of 2.8% to 4.3% a year)
Amount of pension currently contributed by the employee: 31%
Pension benefit is equivalent to what percentage of worker’s salary? 14% to 24%
Canadian Forces employee
Average age at retirement: 45
Years of service: 25
Years collecting a pension: 39
Estimated value of pension at retirement: $640,000 to $790,000 (based on a projected real return of 2.8% to 4.3% a year)
Amount of pension currently contributed by the employee: 27%
Pension benefit is equivalent to what percentage of worker’s salary? 15% to 24%
Ontario schoolteacher
Average age at retirement: 59
Years of service: 26
Years collecting a pension: 30
Estimated value of pension at retirement: $650,000 to $840,000 (based on a projected real return of 2% to 4% a year)
Amount of pension currently contributed by the employee: 50%
Pension benefit is equivalent to what percentage of worker’s salary? 11%
MoneySense Magazine, September/October 2011
Okay, but I'm forced to put in 11% of my gross pay or 17% of my net pay into my pension plan that I am constantly told may not be there when I retire. And that does not include my CPP. Anyone putting 17% of their take home pay into a moderate retirement plan should be able to retire fairly well. The difference is that I have no control or choice.
And that dear friend, is the fundamental debate. With choice comes accountability for the risk. In a DC arrangement, you and you alone are accountable- no pooling of assets to protect the broader group, no 70+ year time horizon to recover from a down market, no survivor benefits to care for loved ones after you've departed. On top of that you get to pay a premium for the private sector to manage the assets that you must control and direct, on top of your day job typically @ 0.5%-2% higher than what institutions pay due to economies of scale. And employers, whether they see it or not are perpetuating the' never will retire' cohort under this model, with the dismantling of mandatory retirement legislation, there will be no ability to generate workforce renewal. One can't have it both ways unless you introduce a hybrid- give me control over a portion through DC but I need a minimum protection under DB. I agree with your point about uncertaintly in the context of austerity programs targeting the public sector and eliminating benefits they thought they had- A: collectively bargained in good faith or B: agreed to as part of their overall employment package.
The data is misleading in that returns on investment over those 27-30 years are conveniently ignored. Meaning, it sounds like governments are paying the remaining 70+% out of tax revenues, which is clearly false- check the ROR for large public sector plans historically and their benchmark returns are generally above average, and for a lower cost per dollar invested in management fees when compared to the private sector. When was the last time a member of a DC plan was forced to contribute upwards of 10% or more to ensure his or her retirement needs? And where did the extra 10% go? consumption. so don'tblame public sector workers for being forced into frugality. If there is any blame to be laid in respect of unfunded liabilities, one need only look at the Income Tax Act which forced- by law- Pension plans to offer contribution holidays and benefit improvements to eradicate perceived surpluses in the late 1990's. Despite the current moribund market conditions, if plans were allowed to retain those surpluses to protect agains future market losses, these liabilities would be much less.
Oh, you're going to get some hate mail for this one.