Pensions and prisons need attention now: auditor general

There was lots of legal fodder in the spring report from the federal auditor general as it raised questions about the country’s overcrowded prisons and the state of pensions for public servants.

The report notes that a year ago, the Correctional Service Canada had more offenders in custody than single cells available, a situation that resulted in problematic “double-bunking” in some prisons.

Although the federal government is building more prison cells in 2014, the new report says the prison system will be dealing with overcrowding again in a few years because of a lack of understanding of long-term trends.

Double-bunking will need to continue even after current prison expansion plans with the overcrowding being especially significant in Ontario and the Prairie provinces.

The Correctional Service Canada has identified “serious implications” from double-bunking, including increased levels of violence.

The report also recommends the federal government assess the long-term sustainability of pension plans for public servants, the Royal Canadian Mounted Police, and the Canadian Forces.

Auditor general Michael Ferguson warned the current state of public sector pensions could pose a “significant risk” with liabilities rising to $152 billion in 2012-13. Over the last three years, pension funds experienced funding deficits totalling $6.5 billion. Special payments were necessary to cover the gap. For 2013, special payments totalled $741 million. Over the last two years, these payments equaled about $1 billion.

In 2012-13, pensions added $9.2 billion to the federal government’s public debt charges.

The auditor’s report on public sector pension plans suggests there has been some activity by the Treasury Board Secretariat going on behind the scenes to look at other pension design options such as defined-contribution schemes, hybrid plans, and a boost to the age of retirement to 65.

“It’s clear there has been some investigation going on around options but it’s not clear from the report exactly what that is,” says Jana Steele, partner with Osler Hoskin & Harcourt LLP’s pension and benefits group.

“They’re probably looking at conversion to [defined-contribution] or other more sustainable plan design options such as shared risk as implemented in New Brunswick. I’m assuming those are the types of things they would have been looking at on the plan design front.”

Longevity, demographics, and interest rates are all factors affecting the sustainability of the plan, says Steele. With pension plans, the strategy should always be about identifying and managing the risks.

“When you look at New Brunswick and the new federal proposal for private sector plans, one of the things they talk about is risk management procedures — so having things in the plan to address risks proactively,” she says.

The report notes the importance of looking at intergenerational equity when it comes to design changes. “We also believe that preserving intergenerational fairness is an important consideration when managing pension plans and assessing their sustainability. This would prevent the situation where one generation is subsidizing the other.”

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