Workers climbs the stairs towards Parliament Hill Ottawa Wed Sept 17, 2012. The fall session starts today.
Credits: ANDRE FORGET/QMI AGENCY
A year ago, I wrote an expose of the MP pension plan. I claimed that thanks to a little-known accounting trick, taxpayers were forced to contribute far more money than official figures showed — almost 300% more.
The reaction from our federal politicians was swift and livid. Several MPs, both government and opposition, e-mailed or called me to insist I had it all wrong.
They were indeed contributing a large chunk towards their own pensions, they maintained.
Where did I get such scurrilous misinformation? Would I retract and apologize, they wondered?
What MPs admitted to was bad enough — nearly six taxpayer-dollars for every
$1 contributed by MPs. You and I are limited by law and tax policy from receiving more than about $1 dollar from our employers for each dollar we contribute.
Still, the truth about the MP plan is much richer (and uglier). I quickly came to the conclusion that many MPs themselves had no idea of the massive trickery behind their pensions.
The money collected from Members of Parliament — about $900 a month — is not invested. Neither is the $3,600 per month that taxpayers kick in for each MP. Yet somehow the MP pension “fund” still manages to earn interest of 10.4% annually. And it earns that healthy amount of interest (far healthier than the return on most of our mutual funds and RSPs) year after year, regardless of rises and falls in the stock market or economy.
How is that possible? Have our parliamentarians found some investing secret unavailable to me and thee?
Well, sort of.
Years ago, MPs passed a law requiring taxpayers to contribute an “interest payment” of 10.4% every year.
Remember, MP and taxpayer contributions together are insufficient to fund our elected representatives’ retirement payouts, and even if they were putting in enough, the money isn’t invested anyway. So there is nothing to earn interest on.
That means the legislatively mandated payment of 10.4% isn’t “interest” at all. It’s just another form of tax on Canadians.
In 2011, MPs (and senators) put $4.5 million into their pensions through payroll deductions. Taxpayers added $26.7 million in matching contributions. And the mandated “interest payment” added a whopping $83.4 million more. That means that for every dollar the boys and girls in Ottawa contributed to their retirements, average Canadians kicked in over $23.
Toronto’s C.D. Howe Institute has calculated that in order for the average Canadian to qualify for a pension as rich as MPs have awarded themselves after only six years in office, we working stiffs would have to save $129,000 per year for six years — or more than double what most of us make in a year, before taxes.
The scheme is unconscionable, which is why it’s a good thing the Tory government has moved to reform it.
The reforms announced this week aren’t perfect (nor are they as stringent as Finance Minister Jim Flaherty has claimed), but according to the Canadian Taxpayers Federation, “this is the most significant reform to MP pensions we’ve seen in our 22-year history.”
Instead of contributing only $11,000 a year towards their own retirements, by 2017 MPs will be ponying up
$39,000 a year. Rather than receiving a pension of about $126,000 a year after just six years in office, new MPs will receive only about $101,000 after about 12 years.
And the “interest payments?” They will drop from 10.4% to 4.7%.
This isn’t $1-to-$1 as the government has insisted; it’s probably nearer to $2- or $3-to-$1. And the changes don’t kick in fully for five years. Still, it is a vast improvement over the current plan and a bigger reform than most imagined.