Wednesday, January 27, 2010

Nova Scotia public employee pensions are insolvent

Finally someone told the truth about Nova Scotia public sector pensions. It was Bill Black and good for the Chronicle Herald to publish it. The truth is that the Nova Scotia public employees pensions are bankrupt! They will not be able to make good the promises they made of future payments to both present and future retirees.

The situation is grim. There is over a $3 billion shortfall between what has been promised to the public sector employees and the amount of money they will actually have to write cheques with. This is even worse when you consider the teachers have already been greased with over $1 billion extra from the taxpayer within the last 10 years to cover an earlier shortfall in their pension scheme.

So what does this mean? First of all there is absolutely no way no how the Nova Scotia taxpayers will come up with this $3 billion. The province is already running an insurmountable defecit of over $1 million a day. It will take drastic measures just to close that gap. The money does not exist and will not exist for the taxpayers to cover the public sector pension shortfall.

The reality is is quite obvious for anyone who cares to spend even a moment looking at it or thinking about it. Although until now it was taboo to talk about it. The truth is that the government is going to renege on the pensions promised to the public sector employees. There's no way around it. There are/will be too many people collecting pension benefits; they are retiring too early; living too long after retirement; the payments are too high. The plans are insolvent and will run out of money. The taxpayers and future working public employees paying in will not be willing or able to come up with staggering increases in deductions to make these payments.

So there will be shared pain. Some of it will be on the taxpayers, taxes will have to increase at least somewhat to fund these pension payments. Some of it will be on the retirees. They will not get everything they were promised. They will have to accept I'd guess somewhere between 50-80% of what they may have been told they would get [better that than getting 100% for a few years then 0% after the cheques start bouncing!]

I don't really feel bad for the public employees who will get "stiffed". They were living in a fool's paradise agreeing to promises from known irresponsible governments such as John Buchanan of generous pension schemes in exchange for labour peace during election campaigns. The union leadership was party to this fraud of agreeing to promises of future payments which a competent actuary would have told them the future governments would never be able to make good. The amounts taken off their paycheques at the time did not reflect what would be needed to fund their promised level of future benefits and everyone who wanted to knew it. Yet the union leaders chose to not insist on a solvent and properly funded pension plan.

The alternative would have been a properly funded and much more modest pension scheme back in the 70s and 80s along with a significantly smaller civil service. I assert that at some level everyone knew all along that there would be at least a partial reneging on these public sector pension promises.

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