News

He calls it our “Modern Feudal System.”

A system where a few have a lot and the majority have – or will have – very little indeed.

The difference-maker in our futures, says Bill Tufts, is going to be our pension plans. Public or private. Gold-plated pensions versus pensions that might not even hold a coat of yellow paint.

“Church and King have been replaced by Government and Big Business,” says the Hamilton-based pension specialist with WB Benefit Solutions. “In the feudal age, the church and nobility always wrestled for the purse of those trapped in the caste system. But the poor serf still paid with everything he grew or could make.”

On his blog and in articles and talks, Tufts has been arguing that the average public servant in Canada will end up with a pension valued at close to $1-million – while the average taxpayer is looking at retirement with less than $150,000 in RRSPs or a small company pension.

The world financial meltdown, he says, has created a situation in which private-sector pensions are under siege – some to the point of vanishing – while public plans are not only protected but, in certain cases, will be topped up in the event of a shortfall by taxpayers who will never collect such a pension themselves.

“People are resentful,” he says.

He also says people are becoming increasingly aware of the situation. The North American media have called it “pension envy,” while the British press has warned about a “pension apartheid” in which retirement lifestyle will be decided largely on whether or not the retiree collects a healthy, protected and often indexed public pension or a squeezed and potentially fragile private one.

Tufts’s message is not popular in certain quarters. He calls himself a “libertarian” with a deeply conservative bent, and says he understands perfectly why some government and union workers would lash out at him when he talks about the growing and unfair “gap” between their pension plans and the plans of most Canadians.

“There’s a lot at stake,” Tufts says. “I would be struggling just as hard as them to keep what I had.”

Pension rage

Bill Tufts and others call it “pension envy” – and it is not merely a Canadian phenomenon. It is a simmering topic in Britain, and in the United States it is increasingly becoming an issue.

New York Mayor Michael Bloomberg this week says his own city’s pension system is “out of control.”

Bloomberg, who was elected largely on promises of financial prudence, says in the eight years since he took office the city contributions to the pension plan have risen almost five-fold, from $1.4-billion to $6.3-billion (U.S.).

The pension plan now gobbles up one dollar out of every $10 in the city budget.

Critics say Bloomberg has only himself to blame, having been so generous with pay raises to the city’s 300,000 or so workers. By raising their wages, The New York Times points out, he himself guarantees bigger pensions on retirement. And with pensions typically 50 per cent of salary, the costs are only going to rise even further.

It doesn’t really much matter how public service pensions get so high – politicians voting for their own, unions successfully bargaining – and there would be no complaint to be had if private pensions weren’t stalled or shrinking, at times even vanishing, at the same time.

Bill Tufts likes to compare an Ontario auto worker for GM with an Ontario teacher. The auto worker, he says, is terrified his or her pension – which Tufts estimates averages around $18,000 a year – is threatened. A teacher at the highest end of the teachers’ scale, on the other hand, has retirement security and will collect a pension that Tufts estimates at $50,000 a year. Lucky are those who qualify.

“For you or me to have a pension at that level,” he says, “you’d need about $1-million.”

He argues that public pensions are higher than necessary if you apply a rule-of-thumb that workers generally see a 30 per cent drop in living expenses when they no longer go to work, no longer need to park, buy lunches, have that second car, etc.

He says there is increasing anger over the discrepancy between public and private pension plans, but he’s not predicting a citizens’ revolt or anything close to it.

“We’re a pretty tranquil, docile people,” he says.

Instead, the Saskatchewan native likes to think a Canadian solution will find its way, just as so often has happened in the past with such government initiatives as medicare and equalization.

What Tufts is calling for is a cross-country “crusade” to convince the national government – not provincial governments – to implement a “supplementary pension plan” that would be available to those workers in the private sector who might like more protection and better benefits and are happy to pay for this security with their own money.

“The ideal solution,” he says, “would be some sort of meeting in the middle, more money for private pension plans, public pension plans giving up a bit. It is, unfortunately, a win-lose situation.”

For that reason, he doesn’t see the public sector giving up anything that has been hard fought and won. However, he believes the federal government could and should provide a way – perhaps through a revamped Canadian Pension Plan – in which people could, on a voluntary basis, have more of their retirement savings in a plan as solid and secured as those enjoyed by the public sector.

One headline writer at the C.D. Howe Institute has called it “A Pension in Every Pot” – a play on Herbert Hoover's famous election promise of “a chicken in every pot.”

Bill Tufts doesn’t have all the answers but he does have one question that is increasingly being asked about the growing difference between public and private retirement plans:

“How,” he wonders, “are people going to get over that gap?”