Terry Corcoran wrote an article in the Financial Post yesterday entitled "Fat cats ignore pension slide" about the gross inequities in Canada's pension system that disproportionately benefit government employees.
This topic of pension inequities that Terry Corcoran has written about only represents the tip of the iceberg. To make things even less equitable, then there’s Stephen Harper's recently introduced rip off known as pension income splitting, and tax free private income trusts for pensions, both of which accrue to government employees and not average Canadians.
Why do the 25% Canadians with pension income (read politicians and civil servants)now get to split their income with their spouses when the 75% of Canadians without pensions do not receive this same profound tax benefit?
Why can the Public Sector Pension Plan own Thunder Energy Trust as a tax free income trust when average Canadians have to pay a rapacious 31.5% tax. Ditto for OMERs, Caisse, Teachers' and the whole lot of them who are opportunistically acquiring undervalued public trusts? Undervalued by the governments' own very actions? The governments after all are the plan sponsors. Meanwhile the politicians and civil servants who concocted this scheme are the plan beneficiaries.
Talk about an exercise in self dealing to the extreme!
Why can the Public Sector Pension Plan act in a predatory way to exploit average Canadians who held it as a public trust and faced growth restrictions and an onerous 31.5% tax , when as a private trust held for federal government employees it pays no tax and is subject to no growth constraints.
Perhaps this exercise in tax fraud has everything to do with the fact that the very people who introduced these grossly inequitable tax measures are the very target group who benefit: POLITICIANS and BUREAUCRATS with government pension plans
Please look up the meaning of the term tax arbitrage and the word inequity. While you're at it, look up the term arbitrary tax arbitrage and arbitrary inequity. Where is the outrage? Where is the governance? Certainly not in government, as they feather their already cushy nests. Time for civil unrest, before we get to old to take it to the streets.
Even Terry Corcoran is starting to figure it out:
May 08, 2008
Fat cats ignore pension slide
Hot over carbon taxes
In the big wide world of Canadian government --federal, provincial, municipal -- nobody looses any sleep over pensions. All's well. Politicians and bureaucrats, teachers and garbage workers, have equipped themselves with the most lavish defined-benefit cash dispensers, guaranteeing life-long retirement payouts that often exceed the average salary of working Canadians. What could be the problem with Canada's pension system?
Bloated self-satisfaction at the government level is likely one reason the non-government pension sector is a shambles. While they await the benefits from their tax-supported pensions, there's little incentive to respond to perils facing the private pension system. The number of Canadians covered by defined-benefit pensions has fallen by 20% to 30% in recent years, with professional actuaries warning that the whole private side of the industry could eventually disappear, leaving only government employees with guaranteed pension incomes -- paid for by taxpayers who are denied the same options.
Defined-benefit plans pay employees a guaranteed benefit. The emerging alternatives in the private sector include definedcontribution plans, in which money goes in and is invested, with the pension benefit limited by the amount of money in the fund after investment returns; nothing is guaranteed. Group RRSPs also offer no guarantees.
But a new report from the Association of Canadian Pension Management yesterday warns that the alternatives to definedbenefit plans -- defined-contribution plans and group RRSPs -- are hamstrung by a host of laws and regulations. They face limits on contributions, unnecessarily complex regulation, balkanized provincial legislation, and continuing risks that plan sponsors will be liable for losses even when they follow prudent investment practices.
In short, all sectors of the private pension market suffer from neglect by the politicians and bureacrats who make the policies. Certainly no significant reforms have come out of Ottawa or most of the provinces (with a few exceptions) in recent years.
Experts in the field -- from C. D. Howe Institute president William Robson to members of the ACPM -- warn that Canadians who don't work for the public sector are at risk of ending up with inadequate post-retirement savings and incomes.
One simple fix to part of the problem would be to increase the amount of money Canadians can annually contribute to their pension plans. The limit is now set at 18% of income, up to certain maximum levels. That 18% limit compares with the effective contribution level in the fattest fat-cat taxpayer-supported government employee pension plan, the fully indexed plan Ottawa runs for the federal public service.
Mr. Robson, in an interview, said the latest Chief Actuary's report on the civil servant pension system shows that, under current defined-benefit payouts and rates of return, the implied
contribution level is greater than 32% of an employee's income, compared with the 18% set by regulation for private plans.
Getting employers and individuals to put more money into pension plan savings, by relaxing unnecessary curbs, is one way to begin reversing the decline in private pensions. Mr. Robson and Robin Banerjee highlight one such limit, an old rule that prevents companies from adding money to their defined-benefit pension funds when fund assets exceed 10% of liabilities (see article at top right). Supposedly imposed to prevent companies from using pensions to avoid taxes, the real effect is to limit corporate contributions to pensions at optimum times.
The biggest cloud over defined-benefit plans is the court-determined rule that pension surpluses belong to the pension plan and its members rather than the corporation. As with other reforms of pension law and regulation, nothing is happening on the surplus issue. Another deterrent to private pension expansion is the risk corporations face if the plan they provide -- no matter what its form -- fails to deliver exactly as promised -- or as hoped. Mr. Robson calls it "fear of litigation," and it can act as a deterrent to corporations thinking of introducing definedcontribution or group RRSP plans. The solution is to provide legal "safe harbours" that would protect corporations.
The safe-harbour issue was also raised by the pension association yesterday. If a pension fund manager invests in a balanced mutual fund as the main vehicle for a defined-contribution fund, but that balanced fund loses money, the plan should not be held liable for the losses. So far, however, there have been no signs of support for such protection from government.
Government pension plans are not without troubles, although they are usually marginal, even when the numbers look big. The Ontario Teachers' Pension Plan is said to be running a $12.7-billion shortfall. But no teachers loose sleep over their pensions. After the government employer kicks in part of the funding shortfall, some benefits might fall, but no crisis looms.
For more and more Canadians, the growing reality is that there might be no benefits at all, or benefits that are dramatically below the levels in the public sector. As Catherine Swift of the Canadian Federation of Independent Business put it last year, "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."
Friday, May 9, 2008
Posted by Fillibluster at 6:42 AM