MLA Pensions

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.

Bill Black

Chair, Nova Scotia Pension Review Panel


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Reference Material

Pensions in Crisis

Voters trying to understand the various positions being advocated for the Canada Pension Plan have every reason to be confused.

The initial incarnation of CPP required only 3.6% of pensionable earnings as contributions, and provided benefits to people well before they had been earned. This was eventually repaired in the nineties; otherwise, the plan would have gone broke.

Today’s CPP provides a pension at 65 of up to $12,780, for which employees and employers annually contribute a combined 9.9% of pensionable earnings. It is simple and cost-effective, but even when combined with Old Age Security (OAS) it does not provide an adequate pension.

After fruitless discussions with the federal government, Ontario proposes to go it alone. Details are not yet finalized and the scheduled start is not until 2017, no doubt reflecting a hope that federal policy will change and save them the trouble. Ontario’s plan, mandatory only for those not already in a pension plan, would require a worker to contribute for 40 years in order to receive an unreduced benefit. The only examples provided on the Ontario website are for employees who work the full 40 eligible years.

The Canadian Labour Congress (CLC) has one of the many proposals to increase the existing CPP. The CLC loves to quote a 2014 Nanos survey in which 88% of Canadians support “increasing the benefits Canadians receive through the Canadian Pension Plan.” Of course the survey does not mention the corresponding need for a substantial increase in contributions, nor the 40 year wait for unreduced benefits. (The same survey makes the shocking discovery that most Canadians would like lower taxes.)

The strongest support for improving benefits was from the oldest respondents, who would get only small benefit from the CLC proposal. There is one group who should actively oppose it. Low income workers are typically able to receive the Guaranteed Income Supplement when they retire, in addition to OAS and a small pension from the present CPP program. An increase in CPP will be largely offset by reductions in GIS. This needy group will be paying something for nothing.

As a result, some proposals for reform, otherwise similar to that of the CLC, do not require contributions or provide benefits on earnings below $25,200. These proposals have considerable merit as a cost-effective and comprehensive improvement to retirement savings for Canadians. 

But that virtue will be much clearer to actuaries and economists than to voters. Most Canadians, given a clear and detailed understanding of proposed changes, would be much more tepid in their enthusiasm for a program that takes so long to mature.

Hence, the rather vague communications from the three political parties. One can search their websites in vain for any indication of what they have in mind.

The Conservatives have argued, incorrectly, that CPP contributions are just another tax. Unlike unemployment insurance, the CPP funds have for five decades been operated entirely outside of government accounts and are only used to pay CPP beneficiaries. Having been opposed to any change, the Conservatives now say that they are willing to consult Canadians about a possible optional program.

How that might work is anyone’s guess. It appears to be just creating a different RRSP opportunity. Are there limits on how much can be contributed? Is it optional for employers too? Are contributions locked in until retirement as is the case for the base plan? This “plan” does not offer much.

The Liberals favour a mandatory program. Liberal Critic for Seniors John McCallum points out that changes would require the agreement of two thirds of provinces with two thirds of the population, so an agreement would have to be negotiated. Their position would tilt toward a large amount of excluded earnings to protect low income earners. Good.

More troubling is that they are not committed to adequate funding, which suggests that they might , as happened with the original CPP, cheat young contributors by paying older ones more benefits than their contributions have earned.

The NDP, which might be expected to follow the CLC recommendation, is so far silent about what exactly they have in mind—although it will clearly be a mandatory program. Caucus Press Secretary Greta Levy promises that “The exact figures on CPP will be announced before the election as part of an NDP government’s approach to retirement security.”

So voters actually trying to understand this complex issue don’t have much to work with.

The Conservatives are trying to fog the issue by musing about a no-hoper voluntary plan.

The Liberals appear to prefer a mandatory plan, but have not drawn any lines in the sand about how it must look. They may be willing to consider an irresponsible funding choice, or to be pushed that way by the provinces.

The NDP say they have advocated a CPP expansion for years—as well as strengthening GIS and reverting the age of OAS to 65. This adds to a growing list of expensive promises with no indication of how they are to be paid for.

Today’s CPP plan is appropriately funded and provides a cost-effective but modest portion of retirement funding. A long term reform is possible that would allow that portion to become more substantial.

The Conservatives have no real intention of making any changes. The Liberals and NDP say they do, but if they choose a wrong model they could do more harm than good.

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