N.B. government employee pensions unable to fund full cost of living amounts in 2023

For the first time since its conversion to a privately run shared-risk plan ten years ago, New Brunswick's largest government employee pension fund cannot afford to pay retired employees a full cost-of-living increase on retirement benefits, instead implementing 94 per cent of the full amount for 2023.

In a report to members this month, trustees of the Public Service Pension Plan which provides retirement benefits to about 18,000 former New Brunswick government department and crown corporation employees and their survivors said it will increase pension payments 5.24 per cent in 2023, instead of the 5.56 per cent it calculated the full cost of inflation to be.

The shortfall will cost the average retiree in the pension plan about $80 next year.

The report said the foregone amount "may be awarded in the future," if financial returns and funding levels in the pension fund allow it.  

"This will be assessed in next year's Actuarial Valuation Report,' said the report.

Shielding pensioners from inflation losses had been a point of pride for trustees up until this year, telling members in a statement this spring that "the strong financial health and stable growth"  of the pension fund was helping "members keep pace with the increase in today's cost of living, today and into the future."   

Clifford Kennedy, a retired government employee and spokesperson for the coalition of former civil servants who unsuccessfully fought the conversion of their public pension plans to private control beginning in 2012, said less than full inflation protection will be hard on some retirees.

"We, like anybody else on a fixed income, have bills to pay and every one of those bills have gone up," said Kennedy.

Retired New Brunswick teachers will be the worst off.

Trustees of their pension fund will decide later in September what inflation adjustment former educators will get for 2023, but it is guaranteed to be well below both inflation and the 5.24 per cent announced for former civil servants.

Teachers have two inflation restrictions in their pension plan civil servants don't, including a provision that limits annual pension changes to 75 per cent of an inflation increase.  A second provision caps inflation increases at 4.75 per cent per year.

Larry Jamieson, the chair of the Board of Trustees of the New Brunswick Teachers' Pension Plan, said it is unclear in the text of pension plan documents if retired teachers are entitled to 75 per cent of the 5.56 per cent increase in inflation (assuming the pension plan can afford it) or are only entitled to 75 per cent of the 4.75 per cent cap.   

One amount would generate a cost of living increase for pensioners of 4.17 per cent in 2023 and the other would generate 3.56 per cent.

Inflation in Canada this year is running at a 30 year high and Jamieson said the cost of living cap on teachers' pensions had been a non-issue for so long, it is not clear exactly how it works.

"It is confusing and that is one of the questions trustees will have to debate at the end of the month," said Jamieson on Wednesday.

"It never had an impact because we were never close to it."

Pension changes introduced by the former government of Progressive Conservative premier David Alward's government, when Blaine Higgs was minister of finance, converted  provincial public service pension plans from defined-benefit systems backed by government guarantees to what it called a shared-risk system.

Under the old system, retirees were guaranteed a fixed level of benefits and if the pensions were short of funds, the province had to cover the difference.

The new system eliminated the guaranteed level of benefits and relies on investment returns generated by the firm Vestcor to fund pensions.