This won’t help the public service’s image. Canadians already see it as big and costly. Its generous defined-benefit pension is its most prized asset, and it already generates resentment among Canadians as the model rapidly disappears from the private sector. Now, Trump’s trade wars have them worrying about their own retirement savings.
Here’s the gist of what happened.
For nearly 60 years, the public-service pension plan has been integrated with the Canada Pension Plan (CPP) and the Quebec Pension. This means CPP pays part of retirees’ pensions. The public-service plan covers the rest. Traditionally, employees earn about two per cent of their best five-year salary for every year worked – up to 35 years.
What changed? In 2019, the government enhanced CPP to boost retirement incomes for Canadians. The key adjustments:
- CPP’s share increased: It went from covering 25 per cent to 33 per cent of pensionable earnings.
- Higher contribution rates: Employees (and the government) were required to contribute more.
- Earnings threshold expanded: More income was brought under CPP’s umbrella.
MPs’ and senators’ pension plans adjusted for this, but for some reason, the public-service plan didn’t. The PBO was baffled. It asked the Office of the Chief Actuary to run the numbers on the impact of this “misalignment.”
Here’s an analogy: Imagine a retiree entitled to a $100,000 pension. The public-service pension plan is designed to integrate with CPP, meaning the two should work together, not stack on top of each other.
How it should work. Before the enhancements, this retiree might have received $25,000 from CPP and $75,000 from the pension plan. With the CPP changes, the balance should have shifted: $33,000 from CPP and $67,000 from the pension plan, keeping the total pension at $100,000.
What actually happened. Instead, the retiree started getting $33,000 from CPP, but the pension plan was still paying $75,000, pushing the total to $108,000. The pension plan didn’t adjust for the increased CPP benefits. It effectively gave retirees a boost they weren’t supposed to get.
Fixing it would save millions. The PBO estimates this misalignment is costing the government about $616 million a year. It’s urging Parliament to fix this and legislate changes to align the plans as designed. That means overcontributions – from both public servants and the government – would stop, and accrued benefits would be restored to the original two per cent target. And with the government scouring for savings in every nook and cranny these days, that may be hard to ignore.
The intent. The public-service plan was designed to work with CPP to give public servants retirement income of about two per cent per year of service. Without the adjustment, public servants are earning more than the two per cent. The PBO says this violates the “spirit of the plan.”
Higher contributions. Public servants and the government contributed over $2 billion more between 2019 and 2025 than they would have if the CPP and pension plan had been properly aligned. It resulted in better pensions for public servants. They also paid higher contributions.
All’s well with the plan. The chief actuary, whose job is to ensure the health of plan, isn’t concerned about the misalignment because the plan remains fully funded. The contributions matched the benefits.
As for that $38-billion surplus piling up in the pension plan, the misalignment had nothing to do with it, says Giroux. (In November, you’ll recall that Anita Anand, then-president of Treasury Board President, moved $1.9 billion of the surplus to government coffers, sparking outrage from the giant Public Service Alliance of Canada. That was the amount that exceeded the allowable limit.) The surplus mushroomed because of high interest rates and strong market returns.
A perk no one asked for? Sources say unions and Treasury Board officials were aware of the misalignment. No surprise that unions didn’t raise it as a problem.
The moral of the story. It’s a fairness issue. CPP enhancements were meant to help Canadians save more retirement income, yet public servants – who already have among the best pensions in the country – ended up with a boost they didn’t even ask for.
And now, a PBO pause. The PBO updated Canada’s fiscal outlook, which will be the baseline for estimating the cost of political parties’ election promises during the election campaign. The PBO conducts these cost estimates only when requested by a party. It also released a public debt charges calculator for proposed measures and the Ready Reckoner to estimate revenue impact of tax changes. And that’s it. No more PBO reports until after the election on April 28.
