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November 21, 2012
Will Canada’s MPs vote to cut their pensions?

Members of Canada’s House of Commons may get a taste of the pension cutbacks that may be in store for the public service in the near future.

According to media reports, the Harper government is considering introducing legislation to make members of parliament pay a greater share of their pension benefits.  As well, other reforms may also take place to bring the pension benefits of parliamentarians more in line with public service pension plans.

Under current arrangements, MPs’ pension entitlements accrue at more than three per cent per year.  Plus, they can collect a pension at age 55 after just six years of service.  Today, an individual with six years of experience (approximately one and half normal government terms,) could collect a pension worth 18 per cent of his/her income beginning as early as age 55.  Since members of parliament earn $158,000 per year, that means a 55-year-old individual could receive a lifetime income of more than $28,000 per year.

In contrast, even the most generous defined benefit pension plans usually provide a 50 to 60 per cent payout only after 25 to 35 years of service and at a normal retirement age of 60 to 65.

Unlike many pension plan members, federal MPs only contribute a modest amount toward their pension plan.  Most contributions are made directly on their behalf by the government.  According to media reports, each MP contributes approximately $11,000 annually to his/her pension while the government pays $64,000 each, a ratio of approximately $1:$6.  (Some organizations, such as the C.D. Howe Institute, disagree with this estimate and suggest the member:employer contribution ratio is closer to $1:$10.  Other advocacy groups, such as the Canadian Taxpayers’ Association,  have suggested that ratio is closer to $1:$24.)

In addition, the MPs’ pension plan is completely unfunded:  benefits are paid through government tax revenue rather than channelled through a separately administered trust fund.   In effect, they never have to worry about pension solvency, opening the potential for benefit enhancements without a corresponding impact on the pension’s trust fund or assets.

Among the reforms that MPs may be asked to consider are extending the qualification age for full retirement benefits to 60 and changing the contribution formula to a 1:1 ratio where members would contribute $38,000 per year with government contributions matching that amount.  That arrangement would align parliamentary pensions closer to the public service pension plan.

If the pension reform legislation is tabled, there is little doubt that many public interest groups, the media and labour organizations will take note of which members of parliament vote to reduce their pension entitlements.

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