If you were wondering why your Member of Parliament does not appear to see why pension reform in necessary, look no further than his/her own gold-plated pension plan. And before you pile on if they go after the federal civil service pensions in the upcoming Budget, compare and contrast what they, the civil servants and you can expect on retirement.
Just to make the comparison useful, assume that your salary is the base remuneration for MPs which was $150,800 in April 2007 and increased in step with the “average Canadian wage increase” since. This ignores the additional amounts for their service as the prime minister, speakers, ministers, leaders of the opposition, parliamentary secretaries, and the like.
You need a bit of patience to make the comparison, and not blank out at the first sign of actuarial jargon or “%” signs. Otherwise, these issues continue to hide in plain sight.
A MP with $100,000 in earnings would receive a full pension of $75,000 after 25 years of service whereas the average federal civil servant would receive about $50,000 with same service period. The CPP pension is a modest $7,000 and the fully expanded CPP or UPP that CARP recommends would provide $43,750 since both these pensions and the civil service pension are based on much longer years of service.
The differences are even more dramatic for a person with only 8 years of service. A MP can look forward to a pension starting at age 55 of $24,000 whereas the civil servant would get about $16,000 for that service and would normally wait until age 60 to start receiving it. The CPP currently offers about $2,242 and the UPP would provide $14,000 – payable at age 65.
The most important difference between the MP pensions and what we have is the richness of the employer contribution. MPs pay 7% of their pensionable earnings and the taxpayer as employer pays the balance of “whatever it takes” to ensure a pension of 75% of the average of the best five years’ earnings after 25 years of service. Pensions for shorter stays are pro-rated.
According to the 2007 Actuarial Report of the MP Pension Plan, MPs contributed $1.6 million in fiscal 2006-07 and the taxpayer contributed $5.4 million – or more than three times as much. But if MPs opt to contribute on their remuneration above $111,100, the taxpayer contribution is significantly higher. MPs contributed $2.6 million and the taxpayer contributed $16.2 million or over 6 times as much.
“Whatever it takes” to produce the MPs’ pension is over 45% of pensionable payroll which is split between the MP and the taxpayer in the ratio of 7% to 38%.
By comparison the federal civil service pension costs 19% of pensionable payroll primarily because the benefits accrue at a lower rate, are not normally payable until age 60 and a full pension is available only after 35 years of service.
The current CPP costs 9.9% shared equally by the employer and employee and provides a maximum pension of $11,210 or 25% of the CPP 5-year average maximum pensionable earnings for 2010 of $44,840.