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The large and growing gap between public and private sector pensions is arguably the most striking feature of Canada’s retirement system. Defined-benefit pensions — or DB pension plans — the most sought-after and valuable workplace pensions, are now found almost exclusively in the public sector. Eighty per cent of public sector workers participate in DB pension plans. Only 10 per cent of private sector workers can make the same claim.

The demise of private sector DB plans has been neither sudden nor surprising. Participation rates peaked in the 1980s but eventually the collapse of interest rates in the early 2000s made DB plans prohibitively expensive. They now cost more than most private sector employers are prepared to pay and more than most private sector workers believe the plans are worth.

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The mystery is not why DB plans have disappeared in the private sector; it is why they have continued to flourish in the public sector. If private sector employers can no longer afford even modest DB plans, how can public sector employers afford much more expensive plans — plans with larger pensions, earlier retirement and full inflation protection? This is the question Malcolm Hamilton and I looked at in a new paper, “Risk and Reward in Public Sector Pension Plans: A Taxpayer’s Perspective,” being released Thursday by the Fraser Institute.