MLA Pensions

The panel charged with reviewing MLA pensions was confronted with a regime that was opaque, unfunded, and absurdly generous. Their report has not provided a satisfactory response to any of these problems.

  1. The proposed benefit accrual rate of 3.5% per annum is still almost twice the level of civil servants and teachers, who have among the most generous plans in the province. It is completely out of touch with average Nova Scotians, 60% of whom have no pension plan at all.
  2. In spite of funding at close to 20% of payroll by employees and taxpayers the teacher and civil servant plans have each developed deficits well in excess of $1 billion. For the civil servants this was addressed by benefit reductions and a $536 million bailout from taxpayers. The government failed to address the issue at all in its recent contract negotiations with the teachers. Given market conditions it is extremely likely that additional deficits will appear in the next valuations. Any plan to get our province back to balance must deal with these costs. How can the MLA’s do so while lining their own pockets so richly?
  3. The plan has hidden its costs from taxpayers by failing to set up any funding mechanism. The report does not provide a clear answer to the costs of its recommendations but if they were provided by a private sector employer they would be close to 50% of salary –say $40,000 per person per year for MLA’s , and much more for cabinet members and party leaders.
  4. The report argues that this kind of plan is necessary to attract capable people to run for office. The facts suggest otherwise. Thirty percent of our MLA’s are from the teaching professions. They have a contractual right to return to teaching when they finish as politicians. The next largest contingents include journalists and political aides, not well paid professions. For all but a very few MLA’s $86,000 represents a considerable improvement in financial circumstances. An absurdly generous pension plan is an unnecessary extra.
  5. The conservative government of Saskatchewan, the Liberal government of Ontario, and the NDP government of Manitoba have each taken steps to bring their costs for MLA pensions into line with their civil servants, either by reducing defined benefit accruals to similar rates or moving to a defined contribution plan. There is no evidence of a decline in candidate quality. These are the examples that the panel should have followed.
  6. Two of the panel’s recommendations deserve support. First, any changes should only apply to future benefit accruals, perhaps from the date of the next election. It is wrong to confiscate benefits that have already been earned. Secondly, it is entirely normal pension practice for benefit eligibility commence after two years. Of course members who have only two or three years of service will have earned very small pensions.

The panel’s proposal is far too generous. It lacks transparency as to cost. And it sets the wrong tone for the urgent task of dealing with the out of control cost of public sector pensions. Each of the party leaders must reject the report and call for a plan that is within the range experienced by Nova Scotian taxpayers. Nobody outside their caucuses will disagree.


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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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