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Pensions: Widening Gap Between Public and Private

January 23 2007 - New research by the Canadian Federation of Independent Business (CFIB) shows a widening gap between the public and private sector in terms of retirement trends and pension plans.

Catherine Swift, CFIB president, said:

"We are on our way to a two-tier retirement system. 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."

According to Canada's Pension Predicament, the public sector has driven the trend towards early retirement since the late 1980s. In 2005, the proportion of early retirees in the public sector was around 56 per cent compared to just over 33 per cent in the private sector and 20 per cent among the self-employed.

The average retirement age for the self-employed has remained stable at 66 years since the mid 1970s. For those in the private sector the average age has decreased from 65 in the mid-1970s to 62 currently. In the public sector the average retirement age has decreased from 64 to 59 in the last 30 years.

Differences in the type of pension offered in the public and private sectors are a major factor. The private sector has placed increasing emphasis on defined contribution plans. However, the public sector has continued to focus on defined benefit plans, generally considered more advantageous for employees. Defined benefit plans have become less attractive to employers because of discrepancies between risks and rewards. Employers must fund this type of pension, with or without employee contributions, and are responsible for shortfalls while significantly constrained from accessing any surplus.

Catherine Swift commented:

"Stating it simply, Canada's pension predicament is one of fairness between the public sector and the private sector. 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."

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