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

Geoffrey Young
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Geoffrey Young: Discovery Economic Consulting

C.D. Howe Institute Commentary, 2012, issue 347

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.

Keywords: Pension Papers; Governance & Public Institutions; Canada; defined-benefit (DB) pension plans; public sector (search for similar items in EconPapers)
JEL-codes: H55 (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (6)

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