Pension reform must start with MPs' plan
By Kevin Gaudet
Anxiety over retirement planning and inadequate pension security are on the minds of many Canadians these days. For about two-thirds of Canadians the focus is on how to deal with not having a pension at all, (other than the CPP). In stark contrast 75 more lucky Members of Parliament can now focus on how comfortable their retirement will be. On June 28th, 75 MPs elected in 2004 will enter the rarified pension elite. These MPs become eligible for their gold-plated pensions after having served only six years in office.
Meanwhile, Canada’s Finance Minister, Jim Flaherty, is trying to drum up support to hike CPP taxes for the rest of taxpayers. Instead of focusing on how to squeeze more out of taxpayers to boost a lackluster CPP, MPs should lead by example and reform their own pensions to bring them in line with those in the private sector.
Members of Parliament do not share the suffering of most working Canadians. Their pay, perks and pensions are some of the most lucrative in the country. Despite a pay freeze, the minimum salary remains $157,700, putting MPs in the top 2 per cent of Canadian wage earners.
In addition to this generous salary they have an obscenely generous pension plan. An MP earns 3 per cent for each year of service times the average of the best five years of earnings. For even the most junior back bench MP, this means the plan pays out a pension (in 2010 dollars) of a minimum of $28,000 a year. For every dollar an MP contributes taxpayers contribute between $4.5 and $7. The plan is also indexed for life. Right now it is indexed at 3.3 per cent a year, which is two to three times the rate of inflation.
In contrast, CPP pays a maximum of $11,000 per year. You have to work your whole life to earn it and only get it fully at age 65. The minimum MP pension plan pays 2.5 times more. An MP gets it after only working for six years and is entitled to take it as early as age 55.
Of course, the MP pension grows the longer an MP has been elected. As well, extra duties increase the earnings average, which in turn drives up the pension amount. Extra duties include serving as a committee chairman, party whip, caucus chairman, party leader, parliamentary secretary, cabinet minister and prime minister.
For example, Jean Chrétien served for over 30 years and spent ten as Prime Minister. His pension is at least $325,000 a year. Gilles Duceppe, the leader of the separatist Bloc Québécois is eligible for a pension of $139,270. In 2025 when PM Harper turns 65 and gains both his MP and PM pension he will be entitled to at least $177,977 a year (2010 dollars).
Roughly only a third of Canadians have some kind of employment pension plan. For those who do, the majority have a plan where their employer matches employee contributions dollar for dollar, putting it all into an RRSP. When the employee retires of leaves he or she takes the account and draws off of it as needs or desires warrant. This is a defined contribution plan. This is what MPs should have. Provincial elected officials in Ontario have this kind of plan.
There’s lots of work to be done on reforming public pensions in Canada, but our MPs will lack any moral authority to take real action until they reform their own plan first.