October 03, 2013 Tom Murray

The shutdown of the US government shows what can happen when a government literally run out of taxpayers’ money and can’t spend any more. It set me wondering just how acceptable Canadians would find it, if the same principle was applied to public sector pensions. I.e. once they run out of money, the public sector would have to stop paying out, instead of being able to just rely on taxpayers to bail them out.

For example, the Nova Scotia Teachers Pension Plan had an income of $133 million in 2011 and paid out $348 million. Short of hitting Vegas or getting into the illegal narcotics game, there is no way investment returns are going to be sufficient enough to bridge a gap that size in any sustainable way over the next few decades. In fact, the declared deficit of the plan is $1.65 billion and rising.

If a private business was running with these figures, it would be declared insolvent and the directors fined for reckless trading. One cannot keep spending at a rate that is clearly unsustainable without any clear plan as to how you are going to eliminate the deficit. There is a plan but one that is rarely talked about openly – the taxpayer will ultimately pick up the tab and so the trustees can borrow to pay out without any difficulty. Unlike the situation in Congress, no one is going to come asking the ultimate payer, the taxpayer, to get approval to spend the money.

Of course I’m not suggesting that Nova Scotia should stop paying their pensioners. But it does show that there is a huge problem being swept under the carpet. Vast obligations are being created on behalf of the taxpayer without any real explanation to them as to why they are shouldering this burden. It would be cynical to suggest that the main reason no one is addressing this issue is that the people who are managing it are also benefiting from similar schemes… but I’m going to be cynical and suggest it anyhow.

Right across Canada, there are hundreds of similar schemes all happy to keep running while in accounting terms being completely out of control. In private firms, shareholder power has ensured that most of their schemes have been shut down to new joiners, so that the liabilities are capped and can slowly be brought under control.

Canada needs to have a major debate on the issue of public sector pensions, as the country cannot continue on its current path. Taxpayer’s should not have to shoulder massive liabilities without their representatives clearly and openly acknowledging that this is what they are doing, thereby allowing taxpayers to have a say on it at the next election.

The US Congress may be playing politics with the shutdown but the concept is undoubtedly correct. It is impressive that their government cannot keep spending on the quiet without it being brought to the notice of the taxpayer. If only Canadians could be sure that their governments would pay them the same courtesy.
Tom Murray

Twitter: @TomMurrayDublin or @Exaxe

Google Plus: TomMurray

What do you think? Let us know in the comments below!

deficit, Pensions, us government, Canada, us congress, Life and Pensions, USA, regulation, Public sector pensions, shutdown, canadian public sector pensions, taxpayers, news, Nova Scotia Teachers Pension Plan

Tom Murray

Tom is Head of Product Strategy at Exaxe with primary responsibility of overseeing product direction. Tom has extensive experience of managing web based insurance software from conceptual design through to commercial release and beyond. Tom has been leading the development of the Exaxe Internet insurance architecture since August 1999.

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