EARLY PAYOUTS SHINE A LIGHT ON MPS’ PENSIONS

MISSING FROM THIS EXTENDED federal election campaign are some 60 MPs of all stripes who opted not to run again this time around. As a result, also missing are millions of dollars in payouts to those same former representatives.

Many of those who hit the trail, including the likes of Peter MacKay and John Baird, likely did so to avoid the new pension rules that come into effect after this election, changes made to mollify public outrage about overly generous pensions.

Currently, taxpayers kick in $23 for every $1 MPs pay to their pensions. After January 1st, taxpayers will pay $1.60 for every $1 MPs contribute. MP pensions will still be generous, but politicians will be kicking in a fairer share. The changes will see MPs elected in 2015 pay triple the current annual pension contributions – from $11,000 a year currently to $39,000 by 2017.

In a case of bad optics, MacKay and a list of Conservative MPs avoid the impact of pension changes that will triple the amount they must contribute and lock in some of the money for an extra 10 years.

In MacKay’s case, he can start drawing a pension of $128,832 annually at 55. His salary of $247,500 – the base MP rate of $167,400 plus $80,100 as a cabinet minister – also saw him claim the 50 per cent “severance,” so he pocketed another $124,000 just for walking away from the job.

In looking at MP pensions, it would take the average Canadian nearly 30 years to save the equivalent nest-egg necessary to produce the eventual pension payouts a backbench MP is eligible for after just six years of service, contribution levels being equal. While a MP has to contribute about $11,000 annually for six years to receive a minimum backbencher pension, a regular Canadian would need to save $129,000 annually over six years for the same retirement payment.

To make matters worse, MPs’ pensions, like others in the public sector, are the defined benefit kind, meaning their guaranteed fixed payouts no matter how the investment markets are doing. Typically, we top up government worker pensions with today’s tax dollars. That’s a sharp contrast to those private sector pensions that do exist, largely defined contribution types; employee-employer contributions are fixed, but the payout is dictated by how well the fund does – the market tanks, so too does your pension.

What does that mean in real terms? As with regular pay raises, MPs and government workers continue to profit even as those paying the bills suffered losses.

Changes to the MP plan is a good start. Next comes the wider public sector, then much-needed reforms to CPP, as the majority of Canadian workers aren’t prepared for retirement.

However, rather than an enhanced CPP that would provide more benefits to future retirees, the federal government has floated a voluntary system that employees could choose to participate in. And employers could choose to contribute to. And would be privately-administered, with all the associated fees, not to mention the possible pitfalls of an industry directly responsible for last (and next) economic meltdown.

Hardly something to ease the fears of the two-thirds of us who don’t have a company pension plan. We’d be much better off in the long run living with larger deductions from our paycheques – we don’t miss what we don’t see – than relying on personal investments.