Pension gap strongly favours public sector employees, CFIB says
Public sector workers have a significant advantage when it comes time to retire, according to the Canadian Federation of Independent Business (CFIB).
The latest report from CFIB’s Pension Research Series found there are “stark discrepancies” between Canadian employees in the public and private sectors when it comes to retirement benefits.
The report, entitled Canada’s Two-Tier Retirement, found that even private sector workers with employer-sponsored pension plans will have significantly smaller pensions than public sector employees.
The report examined two case studies representing one public and one private sector worker. Assuming they both start working at the same time, earn the exact same annual salary over 35 years and make the same pension contributions, there will still be a pension gap of $776,000 — the private-sector worker will have $605,000 upon retirement while the public-sector worker will have $1.38 million.
That $776,000 gap is due to large contributions from the public-sector employer (the government) and to a defined-benefit formula that guarantees benefits regardless of the pension plan’s performance, the report said.
"As big as the gap may seem, we are comparing two workers who do have workplace pension arrangements," said CFIB president Dan Kelly. "It makes you wonder what that gap really is for the millions of Canadians in the private sector that have no workplace pension plan at all. How do they feel about their taxes paying for the gold-plated retirement of civil servants?"
The report calls for government reforms including eliminating early retirement, more sustainable pensions for politicians and civil servants, rejecting Canada Pension Plan (CPP) and Quebec Pension Plan (QPP) increases, and adding new retirement options like pooled registered pension plans (PRPPs). The CFIB is not asking for the government to remove any pension benefits already earned by current public sector workers or retirees, the report said.
"Governments are doing a huge disservice to the majority of taxpayers by permitting these disparities to grow," said Plamen Petkov, CFIB's Ontario director and the report’s author. "It's time they took action to address the unfair gap between public and private sector retirement benefits."
Key facts from the CFIB report:
• Nearly 80 per cent of Canadian workers are employed in the private sector, and about two-thirds of them don’t have a workplace registered pension plan
• 20 per cent of workers are employed in the public sector, and 87 per cent of them do have a workplace registered pension plan
• To replace 70 per cent of their working income in retirement, federal government workers would have to contribute about seven per cent of their salary, while private sector workers would have to contribute about 21 per cent.
