January 17, 2007 Toronto � There is a widening gap between Canada�s public and private sectors in terms of retirement trends and pension plans, according to a new position paper, titled Canada�s Pension Predicament, released today by the Canadian Federation of Independent Business (CFIB).
�We are on our way to a two-tier retirement system,� said CFIB president Catherine Swift. �In researching this issue, it became obvious that those of us who work in the private sector will not have the same means to retire as our counterparts in the public sector, and to add insult to injury, we are subsidizing their retirement lifestyles.�
The research shows that since the late 1980s, the public sector has driven the early retirement trend. The proportion of early retirees within the public sector was around 56 per cent in the year 2005, while in the private sector it was just over 33 per cent and for self-employed individuals it was well below the public sector rate at only 20 per cent.
In fact, said Swift, Canada�s self-employed individuals retire the latest. From the mid-1970s to today the average age of retirement for this group has remained stable at 66 years of age. For private sector employees the average age of retirement decreased moderately from 65 years of age in the mid-1970s to 62 years of age today. In the public sector however, the average age of retirement has decreased from 64 years of age to 59 years of age in the last thirty years.
One of the major drivers of this trend is a growing disparity between the types of pension plans being offered in the public and private sectors. While the private sector has been moving toward defined contribution plans, the public sector has stayed with defined benefit plans, which are generally considered more generous for employees. For employers, the defined benefit plans have become less attractive because of a mismatch between risks and rewards. The employer is responsible for funding the defined benefit plan, with or without employee contributions, and is also responsible for any shortfalls. Yet, employers cannot access or are constrained from accessing any surpluses in the plan.
�Stating it simply, Canada�s pension predicament is one of fairness between the public sector and the private sector,� said Swift. �Undeniably, both play crucial roles in the economic well being of Canada. However, the different treatment in law, regulation or compensation philosophies that exist between public and private sector pension plans, is unjustifiable and unfair to Canadians. There is no valid reason why Canadian taxpayers are on the hook for public sector pensions plans when in fact half of the Canadians working in the private sector will not even benefit from any private pension plan upon retirement.�