HUGE PUBLIC SUBSIDIES EXPLAIN PENSION SUCCESS

    The large and growing gap between public and private sector pensions is arguably the most striking feature of Canada’s retirement system. Defined-benefit pensions — or DB pension plans — the most sought-after and valuable workplace pensions, are now found almost exclusively in the public sector. Eighty per cent of public sector workers participate in DB pension plans. Only 10 per cent of private sector workers can make the same claim.
    Canada’s public sector DB plans frequently cite the “Canadian Pension Model” — the manner in which they are organized, governed, administered, funded and invested — as the reason for their success. A recent World Bank study attributes the success of the Canadian Pension Model to superior governance, economies of scale, innovative investment practices, responsible funding, visionary leadership, high pay and other virtues too numerous to mention.

   That Canada’s public sector DB plans have done a superb job for their members is undeniable. No one would question the plans’ success; but we do question the reason for their success. It is due to large public subsidies made possible by practices that are neither admirable nor virtuous: bad accounting, poor governance, imprudent risk taking and inadequate financial disclosure.