21 September 2011

The Public Sector Pensions thing explained #nlpoli #nlvotes

People can’t understand the racket over provincial pensions, what the Liberals proposed, what the CBC reported but hasn’t explained and what the provincial Conservatives are attacking the Liberals over.

Here’s a simple explanation of the math, the policy ideas and the problems with what’s happened.

The Background

The issue is about some retired provincial public servants whose pensions are not indexed to inflation and who continue to receive the same amount today they received up to two decades after they retired.

These pensioners have been pressing for a cost of living increase for most of the past 20 years.

Here’s what the Liberals proposed on Monday:

A New Liberal Government will provide a one-time 2.5%
increase to Public Sector Pensioners and subsequently, annual increases equivalent to CPI, to a maximum of 2%.

We will  establish an arms-length Review Commission to examine long term, just and equitable solutions following the principles of fairness and natural law. [Paragraphed for clarity]

That first bit is clear enough.  The second bit is important.  Keep it in mind for later.

On the day the Liberals announced that policy, CBC contacted the provincial finance department for an analysis and for some inexplicable reason, the department offered a comment on a political issue in the middle of an election campaign.

CBC reported that:

…the Department of Finance told CBC News that the Liberals' plan would add $1.2 billion in additional liabilities to the pension plan.

You can find links to two CBC stories at this recent SRBP post

By Wednesday, provincial Conservative leader Kathy Dunderdale was saying:

Premier Kathy Dunderdale calls the Liberal Party's plans to provide a one-time 2.5 per cent increase to public sector pensions, and annual increases up to 2 per cent, "frightening". Dunderdale questions Kevin Aylward's ability to balance the books. She says the full 2 per cent indexing would add about $1.8-billion to the unfunded liability.

That’s from VOCM.  The story might be disappeared within 24 hours of this post.

The Liberals counter that the proposal will cost an additional $13 million or so to the existing annual public sector pension spending or so the first year and an additional $10 million every year afterward, maximum until the to review commission reports and government acts on the recommendations.


The major difference in the Liberal and Conservative argument is over annual cost versus total liability.

A check with the Liberal campaign found that they used the latest annual report of the provincial pension investment committee.

Then they looked at the total payment in 2010 of $532 million and change.  That’s right there on page four of the report.

Now right off the bat that includes administrative costs and refunds to people who’ve taken their cash and gone elsewhere. The Liberals actually started with a figure higher than the actual pension payments in 2010 of $494 million but let’s take $520 million which is the actual budgeted pension benefits payment this current year.

If you do simple math, you will find that 2.5% of $520 million is $13.0 million. In the first year, the Liberal pledge will cost the $520 million already committed plus another $13 million or $533 million.

In the worst case scenario, the maximum subsequent add-on will be 2% of the year before. The figure in the next year would be $533 plus  two percent of that ($533 + $10.66 million). 

One question to consider is how much that will cost over time.  Well, how long is a piece of string?

Let’s take 10 years as our length of time. 

If you work that out over 10 years, what is costing you $520 in 2011 will cost you roughly $636 million in 2021.  That’s $116 million more than today.

In 2031 – or 20 years from now - the annual price would be a little over $250 million more than the government is paging out today.

The Conservatives – and the finance department – refer to the public liability.

What they are doing is taking all the extra money, the 2.5% and the 2.0%, and then they are adding up all the extras over time to give you a number.  Their liability number is the extra spending added up over time.

Based on this example, their figure of $1.8 billion would be the cumulative total of the extra money in about Year 17.  Why they picked that number is a mystery because so far no one has explained anything.


What you have here is exactly what is supposed to occur during an election campaign.  One party is proposing something.  people are going to criticise it.

People need to look at this proposal and discuss it in all its merits or de-merits.  the people doing that should be the politicians and the general public.

Public servants shouldn’t be weighing in on this stuff. As a matter of principle, it is wrong. 

It gets particularly troubling when you consider that the comment officials gave to CBC deliberately chose to put forward a large – and therefore frightening – number when it becomes associated with words like liability and debt.

It becomes disingenuous when the finance officials failed to note – apparently – that you can do the same thing with any government spending.  total up the cumulative increase in anything and you can get a scary number.

The question is whether the people who are making the decisions have full, and accurate information in front of them so that they can make an informed chose.  What is in the public domain right now from CBC and the finance department is misinformation.

.And therein lies the second problem.

The CBC, like all news media, have a duty to inform their audience.

On this one, so far, no one has done anything to inform anyone about the pensions issue. Covering the “he said, she said” doesn’t cut it. 

And it really doesn’t cut it if the news media outlet went in search of a comment in the first place and – in the process – injected themselves into the political fray.  It’s one thing to observe and report about the game.  It’s another thing to throw a puck on the ice. 

What you’ve got now is not an informed discussion of the policy issue and its merits. You’ve got a confusing melee in which the ruling Conservatives are getting a free ride:  they haven’t had to explain themselves.  They can simply build off the implicitly objective third party critique coming via the CBC.

Meanwhile, has anyone asked the finance department to figure out the public finance liability in the NDP election platform?

- srbp -