Posted August 8, 2011
Below is a submission to the panel reviewing pensions for Nova Scotia MLA’s.
The existing regime for pensions to retiring MLA’s is wrong in every respect. The costs are high, uncertain, and volatile, and have been hidden from public scrutiny.
Most Nova Scotians have no pension plan at all. Of those that do the most generously pensioned are largely in the public sector. For teachers and civil servants the province and the employees each contribute about 10% of payroll. Yet the funding of these plans has been so inadequate that additional contributions by taxpayers of $536 million for civil servants and over $400 million for teachers have been required over the years, and the teachers plan is still seriously underfunded.
The current MLA plan accrues benefits at two and a half times the rate for teachers and civil servants. The cost has been estimated by the Department of Finance at close to 70% of payroll.
Supporters of these plans never talk about the cost. Sometimes it is suggested that these benefits are needed to attract good people to public office. But in fact pension plan members almost always underestimate the cost of plans provided to them , especially when those costs are hidden. More to the point, with few exceptions MLA’s earn more salary than they did prior to being elected. It is true that some other jurisdictions in Canada have similar plans but we are not competing with them for talent in our legislature, and they may have equally little justification.
Any new plan must incorporate the following characteristics:
Cost certainty: The annual amount contributed by taxpayers will be the only obligation. There should be no later bailouts of underfunded promises. This can be achieved by having a defined contribution plan ,or a defined benefit plan where the benefits are periodically reviewed and adjusted ( up or down) to meet what the contributions plus investment returns will provide.
Transparency: All contributions, payouts, and fund accounting must be fully disclosed to the public.
Reasonable cost: A contribution level of 10% of payroll payable by taxpayers , matching what is paid for teachers and civil servants , seems reasonable. Anything beyond 20% would be grotesquely excessive. Allow MLA’s who are former civil servants or teachers ( quite a large number) the option to remain in those plans .
Transition: All existing pension benefits should remain unaltered, although indexing terms should be not more favourable than those received by retired civil servants. Likewise benefits accrued to date by current MLA’s should not be reduced. But after the next election all benefit accruals should be based on the new plan.
Attracting Candidates: If it is felt that better compensation is required to attract good candidates the best approach is with higher salaries.
Most taxpayers have no pension plan at all. The plan provided to MLA’s should be within the range of those who do, at a cost that is clearly and completely disclosed.
Chair, Nova Scotia Pension Review Panel
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