Changes to pension plans save public funds but have major impact on employees22 January 2015
FREDERICTON (GNB) – In her latest report to the legislative assembly, the auditor general of New Brunswick, Kim MacPherson, provided observations on the province's pension plans, including the impacts of the conversion of the Public Service Superannuation plan to a shared-risk pension plan structure in January 2014.
She found that the elimination of “special” payments to the Public Service and Teachers’ plans saves the province approximately $150 million a year. However, the changes also mean some employees will have to work longer, contribute more to their plan or receive less pension benefits.
“Pension plan changes are impacting the new and mid-career employees the most, while those near retirement are less affected,” said MacPherson.
The report says that employees with many years of service are less affected because the province guarantees that benefits earned before Jan. 1, 2014 will never be reduced.
Among other things, the new shared-risk structure increases employee contributions; pushes retirement age without penalty to 65; increases early-retirement penalties from three per cent to five per cent per year; calculates the pension benefit on a career-average salary rather than the best-five-years salary; and removes automatic yearly indexing.
One of the key objectives of the conversion to a shared-risk pension model for the province’s largest pension plan was to ensure the future sustainability of the plan.
The report provides examples on how the new shared-risk model affects employees. The examples show employee impacts range from $42,600 to $408,100 depending on the years of service, retirement age and salary level. The report also contains observations on financial accounting for the new shared-risk pension model and historical pension funding trends.
The report Observations on Pension Plans can be found in Volume one of today’s report, along with other matters arising from the annual financial audit of the Province and Crown agencies. Volume two contains performance reports completed in 2014. Both volumes are available online at www.agnb-vgnb.ca.