Finance Minister responds to pension issues

Finance Minister Lloyd Matthews addressed a number of issues that have been raised publicly concerning pension increases for former provincial government employees, teachers and other public sector workers. These include the financial health of the various pension plans and demands for indexation. "The financial condition of these plans is well known," Mr. Matthews advised. "The pension program is administered by the Pension Investment Committee which has access to all financial information and reports. Since 1994 this committee has had representation from all major public sector unions and the Public Service Pensioners Association."

"In terms of financial viability, it should be noted that provincial public sector plans are seriously underfunded. In fact, today there is a deficiency of about $3 billion," Matthews said (the public service plan is 50 per cent funded and the teacher�s plan is 17 per cent funded). "This has occurred for two main reasons. First, a separate pension fund was not established until 1981. Prior to that, contributions of employees were used for the payment of pension benefits and general government expenditures. Secondly, previous governments have given ad hoc raises to pensioners. These increases were not a benefit provided under the various pension plans. As a result, no contributions were made to cover the cost by the employees or their employers. The combination of these two factors has led to pension plans which are in a weakened financial position."

This administration has taken significant steps to address the funding situation. By the end of the next fiscal year, this government will have contributed $548 million towards moving these plans to a more financially secure position. "This is a very large financial commitment," Matthews stated. "The extent of the under-funding is such that even if government immediately paid all amounts required prior to 1981, the plans still would not be fully funded."

Recently various public sector pensioner associations and unions have been calling for indexation. "We have explained that government cannot carry the cost alone, but it is prepared to discuss pension indexing with the various unions during the upcoming round of collective bargaining provided such a program is properly financed," Minister Matthews continued. "However, representatives from NAPE have recently stated that current employees are not willing to finance any of the costs associated with indexing. Instead, their position is that the full cost must be borne by government. We feel there is no basis for further discussion, until the union recognizes that any solution must be a shared solution."

"Indexation, in any form, is a major cost to all pension plans. For example, if government were to give an ad hoc raise consistent with the seven per cent over 39 month salary increase recently given to public sector workers, the liabilities of the plans would increase by $175 million. This would have to be properly financed in addition to the amounts already being paid into the fund, if the plans are to continue toward self sufficiency," Matthews stated. "Government is not in a financial position to take on this additional burden. Faced with the choice, it is government�s opinion that it is much more important to secure the benefits already promised than to provide further improvements which could bankrupt these plans. This approach is consistent with the recommendations of the Commission of Inquiry on Pensions in 1989."

"That Commission of Inquiry recommended that government stop giving ad hoc pension increases, and this government has followed that recommendation. Government is not willing to use taxpayers� money, many of whom do not have pension plans at all, and most of whom did not work for government, to provide increases for public sector pensioners," said Minister Matthews. "Public service pensioners have received, and will continue to receive, 100 per cent of the benefits for which they paid. In fact, many are getting more than 100 per cent because of the ad hoc increases of the past."

Media contact: Paula Dyke, (709) 729-0329.

2000 03 13                                     11:05 a.m.