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Winners and Losers: The Inequities within Government-Sector, Defined-Benefit Pension Plans

Author

Listed:
  • Geoffrey Young

    (Discovery Economic Consulting)

Abstract

There are little-acknowledged yet striking inequities built into the payout formulas of defined-benefit (DB) pension plans, which are typically provided to government employees across Canada. An analysis of representative DB plans shows they systematically transfer income away from groups of employees in occupations with slow wage growth to employees in occupations or careers with higher wage growth rates; this often means from low-income clerks to high-income deputy ministers. The winners are “high-flying” employees who are likely to enjoy pensions that exceed the value of the accumulated employee and employer contributions in their “accounts” at retirement, while the losers are those who would be better off if they simply received the value of their contributions plus interest rather than rely on future payments from a discounted pension. However, public-sector DB plans could be redesigned to retain much of their appealing certainty and efficiency without redistributing retirement income among members to the extent that they now do.

Suggested Citation

  • Geoffrey Young, 2012. "Winners and Losers: The Inequities within Government-Sector, Defined-Benefit Pension Plans," C.D. Howe Institute Commentary, C.D. Howe Institute, issue 347, April.
    • Handle: RePEc:cdh:commen:347
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    File URL: https://www.cdhowe.org/public-policy-research/winners-and-losers-inequities-within-government-sector-defined-benefit-pension-plans
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    References listed on IDEAS

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    1. Casey B. Mulligan & Xavier Sala-i-Martin, 1999. "Gerontocracy, retirement, and social security," Economics Working Papers 383, Department of Economics and Business, Universitat Pompeu Fabra.
    2. James E. Pesando, 2008. "Risky Assumptions: A closer Look at the Bearing of Investment Risk in Defined-Benefit Pension Plans," C.D. Howe Institute Commentary, C.D. Howe Institute, issue 266, June.
    3. Tammy Schirle, 2008. "Greener Pastures: Understanding the Impact of Retirement Incentives in Defined-benefit Pension Plans," C.D. Howe Institute Commentary, C.D. Howe Institute, issue 262, May.
    4. James E. Pesando & Morley Gunderson, 1988. "Retirement Incentives Contained in Occupational Pension Plans and Their Implications for the Mandatory Retirement Debate," Canadian Journal of Economics, Canadian Economics Association, vol. 21(2), pages 244-264, May.
    5. Charles Sutcliffe, 2007. "Should Defined Benefit Pension Schemes be Career Average or Final Salary?," ICMA Centre Discussion Papers in Finance icma-dp2007-06, Henley Business School, University of Reading.
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    Cited by:

    1. William Robson & Alex Laurin, 2014. "Ottawa’s Hidden Deficit: The Widening Gap between Federal Government Pension Liabilities and Assets," C.D. Howe Institute Commentary, C.D. Howe Institute, issue 406, April.
    2. Kevin Milligan & Tammy Schirle, 2018. "Rich Man, Poor Man: The Policy Implications of Canadians Living Longer," e-briefs 282, C.D. Howe Institute.
    3. William B.P. Robson & Alexandre Laurin, 2015. "Ottawa's Secret Debt: The Burden and Risks of Federal Employee Pensions," e-briefs 208, C.D. Howe Institute.
    4. William Robson, 2012. "Ottawa's Pension Abyss: The Rapid Hidden Growth of Federal-Employee Retirement Liabilities," C.D. Howe Institute Commentary, C.D. Howe Institute, issue 370, December.
    5. Ian Irvine & William Sims, 2012. "A Taxing Dilemma: Assessing the Impact of Tax and Price Changes on the Tobacco Market," C.D. Howe Institute Commentary, C.D. Howe Institute, issue 350, May.
    6. William B.P. Robson & Alexandre Laurin, 2018. "Retiring Employees, Unretired Debt: The Surprising Hidden Cost of Federal Employee Pensions," C.D. Howe Institute Commentary, C.D. Howe Institute, issue 514, May.

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    Keywords

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    JEL classification:

    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions

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