The last time MP pensions were on the chopping block was 1993, when Preston Manning and the Reform Party came to Ottawa to change the way Canada did politics. The Reformers said gold-plated MP pensions put politicians out of touch with ordinary Canadians. They did the noble thing by “opting out” of the parliamentary pension plan. But when Jean Chrétien’s government gave them the opportunity to retroactively opt in after the 2000 election, the take-up was nearly unanimous.
The math was so simple that MP Ian McClelland, by then a member of the Canadian Alliance, described his dilemma this way: “To choose between being called a hypocrite and stupid, I would choose to be called a hypocrite.” Colleague Monte Solberg observed that refusing the pension was like wearing a hair shirt.
In the grand scheme of things, the $25-million taxpayers put into the MP pension plan last year is small potatoes. That’s less than the federal government spends every hour of the day.
But MP pensions are important for their symbolic value, not only to taxpayers but to the 280,000 public servants who take comfort in knowing their entitlements won’t be touched while the MPs’ plan remains in place.
To taxpayers, the salient number is the $3-billion Ottawa currently kicks into the public servant pension scheme, an amount that’s certain to grow by leaps and bounds. Last month, the C.D. Howe Institute calculated that the federal public pension liability is $80-billion higher than government estimates. Except among public-sector devotees, it’s hard to find anyone who believes that pensions for government workers are connected to economic reality.
But before MPs take on public-sector pensions, they need to look in the mirror. Some parliamentarians argue that they are in a different category than public servants because they sacrifice their best income-earning years to serve the greater good. But for many, being an MP is the best job they will ever have. For high achievers such as Jim Prentice (now vice-chairman for CIBC), it’s hard to say his time in Ottawa hurt his long-term earning potential.
What makes it all the more difficult for MPs to tackle public servants’ pensions is the advantages they hold over their underlings:
- While government workers get 2 per cent credit of earnings for each year of service, MPs get 3 per cent.
- A long-serving MP’s pension tops out at 75 per cent of “best earnings,” whereas government workers get 70 per cent.
- MPs contribute 7 per cent of their salaries to pension, while government workers contribute 8.4 per cent.
If Stephen Harper’s government is looking for inspiration, it should consider what Mike Harris did in Ontario in 1996. Today, Ontario MPPs contribute 10 per cent of their income into an RRSP-style system. As the economy goes, so goes the value of the pension.
Unfortunately for Ontario taxpayers, Mr. Harris did not take the next logical step and convert all public-sector pensions into a defined-contribution RRSP system. But unlike MPPs, government workers had unions to guard their entitlements.
Perhaps the best evidence that MP and public-sector pensions are going the way of the dodo bird is what began happening on Jan. 1, right under Mr. Harper’s nose.
As of that date, membership in the Export Development Canada defined-benefit pension plan has been cut off, with all new hires enrolled in a defined-contribution pension plan. As a financial institution, EDC is following the example set by the Royal Bank, which is also now placing new hires into a defined-contribution pension stream. The bank calls it responsible financial management, making pension costs more predictable and reflective of market reality.
Nationally, evidence indicates that membership in defined-benefit plans is in decline. But while government plans may be the last bastion, fall they will.
By limiting pension reforms to new hires and the newly elected, Mr. Harper can gain support from those already in the system. But the sooner the government turns off the tap, the sooner we stop perpetuating an inequity and burdening future generations.
Bob Plamondon is a public policy consultant and the author of Blue Thunder: The Truth about Conservatives from Macdonald to Harper.