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MP Pension Plan Reforms on their Way

By Gregory Thomas & Scott Hennig Created: October 17, 2012 Last Updated: October 17, 2012
Related articles: Opinion » Viewpoints
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Gregory Thomas is the Federal Director of the Canadian Taxpayers Federation. (Courtesy Canadian Taxpayers Federation)

Gregory Thomas is the Federal Director of the Canadian Taxpayers Federation. (Courtesy Canadian Taxpayers Federation)

Sometime in the next couple of weeks the Harper government will introduce another one of those printer-choking omnibus bills. Contained somewhere in the depths of the bill will be changes to the MP pension plan.

If leaks to the media from within the Conservative caucus are to be believed, we already have a pretty good idea of what to expect.

The optics MPs want to achieve is a matching $1-to-$1, MP-to-taxpayer contribution ratio. Their proposal certainly moves in that direction, but the math simply doesn’t add up.

It’s suggested that starting in 2015, parliamentarians will begin to pay triple what they’re currently paying into their pension plan, perhaps as much as $33,000 or more, compared to the $11,041 yearly contribution they’re making now.

Setting aside the nasty little tradeoff that will see MP salaries rise to offset their increased contributions, MPs old, and even new, would still not meet the $1-for-$1 ratio.

Let’s take the scenario of a brand new MP elected in 2015. After just three terms in the backbenches, they would be eligible to collect a guaranteed pension starting at age 55 of nearly $75,000 a year (and that’s not including their CPP, OAS, or any other pension they may have from a previous career).

When factoring in spousal benefits and annual cost-of-living adjustments, a normal Canadian would have to have $1.46 million saved up to purchase the same MP pension plan. However, that MP would have only put $484,000 into the pot. That means taxpayers would be chipping in $2 for every $1 the MP put into his or her pension plan.

If changes go a step further and the retirement age for MPs is moved to 65—perish the thought—that would get them even closer to a $1-for-$1 ratio. Using the same hypothetical scenario above, it would result in dropping the taxpayer contribution down to $1.82 for every $1 the MP put into their pension fund.

There’s one more factor: Currently, contributions to the MP pension plan are not invested. If, going forward, they were to actually be invested, the $1-to-$1 ratio inches yet closer.

In plain English it means that for every $1 federal politicians put into their pension fund, taxpayers put in $24.

Scott Hennig is the Vice-President of Communications for the Canadian Taxpayers Federation. (Courtesy Canadian Taxpayers Federation)

Scott Hennig is the Vice-President of Communications for the Canadian Taxpayers Federation. (Courtesy Canadian Taxpayers Federation)

However, the above illustration is for a new MP, starting a new plan. There are hundreds of already-retired MPs and hundreds of existing MPs yet to retire who will qualify under the existing rules.

Conservative leakers haven’t said a word about the current “interest” charges paid by taxpayers into the parliamentary pension fund. And with good reason: The defined-benefit pension obligations require a huge injection of taxpayer cash each year.

In his most recent report to Parliament, the Chief Actuary of the Office of the Superintendent of Financial Institutions noted that MPs simply topped up their pension fund this past year by mandating a 10.4 percent “interest rate” be paid.

This is a practice the actuary called “inappropriate.” In plain English it means that for every $1 federal politicians put into their pension fund, taxpayers put in $24.

The Canadian Taxpayers Federation has repeatedly called on MPs to abandon their current platinum-plated, defined-benefit pension plan, in favour of a $1-for-$1 matching, RRSP-style pension plan.

The defined-benefit pension obligations require a huge injection of taxpayer cash each year.

Or even better, MPs could adopt the new Pooled Registered Pension Plan (PRPP) they created. If it’s good enough for the rest of Canadians, it should be good enough for them.

There’s still time to get it right and MPs should reform their plan as such.

But if leaked reports do prove accurate, we can conclude two points. While the new plan will represent a vast improvement over the current plan, it will not—despite claims to the contrary—be a $1-for-$1 matching contribution.

The parliamentary pension fund will still require a taxpayer-provided “interest” top-up of some $100 million in the coming year—a ratio that remains $24 to $1.

However, it is a ratio that will come down significantly with each new crop of MPs entering the new plan and fewer and fewer MPs drawing from the old plan over time.

Gregory Thomas is the Federal Director of the Candian Taxpayers Federation (CTF). Scott Hennig is the Vice-President of Communications for the CTF.

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