Benefits and pensions consultants weigh in on the possibilities of what pension policy could look like post-Trudeau government
With Prime Minister Justin Trudeau officially stepping down from the Liberal party, pension and benefits consultants are keeping a close eye on what could happen next after parliament returns from its prorogation in late March. An election seems likely to follow, and the Conservative party currently holds a commanding lead in the polls. That leads many to ask, what a possible Tory government might enact around pensions should they be voted in?
Greg Hurst is looking at possible Conservative policy to inform his outlook. The managing director at Hurst & Associates believes one of the key factors will centre around what a Conservative government does when it comes to pension policy and pension funds.
He points to the Conservative party's policy declaration, which he claims will “fundamentally alter how pensions are provided to federal government employees.” Notably, he adds their policy declaration says federal government pensions should be transitioned to a defined contribution (DC) model with employer contributions, like the private sector.
“That would be a major and very contentious change, but my view is that with Trudeau’s departure, the Liberals could perform better, and there will be a stronger opposition to hold the Conservative government to account in regard to addressing those kinds of changes,” says Hurst.
Despite the public sector still overwhelmingly offering defined benefit (DB) pension plans, Hurst explains DB plans have become problematic for employers in the private sector for the past few decades because of the uncertainty that a DB plan offers to employers.
At any point, a DB plan may have enough funds to deliver on all its benefits, it may have too many funds, or it may have not enough. If there’s not enough, the employer has to put more money in the plan but if there’s too much, the employer may take money out. In many cases though, they’re unable to because of the terms of the trust under these plans, explains Hurst.
“They've been declining in popularity in terms of what employers prefer to set up for their employees, and we've seen a transition to defined contribution plans, where the employer contribution rate is fixed as is the employee contribution rate,” says Hurst. “What becomes variable is the amount of pension that will be paid to the employee when they reach retirement. That depends on both the employees’ working career under the plan as well as contributions and the investment earnings earned in the plan.”
Consequently, Hurst believes there could be a shift to DC plans in the public sector, even though they’re often considered less valuable for employees than DB plans. After all, DC plans transfer the funding risk to employees and typically provide lower retirement income compared to DB plans. A Tory government might also be more interested in looking at raising the normal age of retirement – generally considered to be 65 - affecting Canada Pension Plan benefits and Old Age Security benefits.
Ultimately, while Trudeau’s departure doesn’t make much of a difference in the context of pension and benefits, Hurt says, it does become a pension discussion, particularly one involving public sector employees as he points to the recent controversial decision the federal government made to pull pension surplus out of the Public Service Pension Plan.
Meanwhile, Dean Newell, vice president at Actuarial Solutions Inc., will be keeping a close eye on whether a Conservative government will make any adjustments to the federal employees’ Public Service Pension Plan.
“We’ve seen in the past movements to try to make that more like a target benefit plan arrangement,” he says. “Will they try to do something like that? Ages ago, the federal government tried to introduce target benefit plan legislation and that didn't go very far.”
He also asserts that eliminating the 6-year vesting requirement for Members of Parliament pensions could help prevent conflicts of interest. “The federal government should really look to remove the MP pension plan so we're not in a situation where there's the implication that politicians don’t want an early election because of the self-interest of them qualifying for their pension,” he says.
Additionally, he claims a change to eliminate the vesting requirement would likely increase the costs of the plan, “a cost which would be borne equally by the MPs and taxpayers via higher plan contributions.”
Newell also believes the federal government still has a lot of work to do to improve legislation around variable pension life annuities (VPLAs). With current VPLA legislation only applicable to very large DC pension plans, he hopes to see it expanded as a financial product that can be offered to more Canadians.
“There's a lot of demand, I believe, to get that to a better solution than where we are today,” says Newell.
