When you raise the issue around the water cooler about how we pay our politicians in Ottawa, it rarely takes long before you hear a rant about their platinum-plated pensions. And for good reason; the over $100 million taxpayers kick in each year is not chump change. But, it’s the tip of the pension iceberg in Ottawa – a tip that needs to be sliced off in order to address the real government pension costs that are quietly eating away at Canadian pocketbooks.
To be precise, taxpayers annually contribute $102.7 million to the pensions of MPs and Senators. This number dwarfs the mere $4.4 million paid in by the politicians themselves, a ratio of $23.30 in taxpayer funding for every $1 paid by the people who will receive the pensions.
Many backbench MPs defeated in last year’s election started collecting $33,000 in annual pension at age 55 for just seven years of service.
While not quite as generous as the politicians, even senior government bureaucrats have gotten in on the act. Taxpayers put $80 million into their pension plan in 2010, while senior bureaucrats contributed $11 million, a staggering $7.27 to $1 ratio.
When it comes to pensions, the best thing we can say about MPs, Senators and senior bureaucrats is that there aren’t too many of them: relatively speaking, they’re a small problem. Fattening up their pensions cost taxpayers less than $200 million annually. The pensions of the entire federal government payroll, on the other hand, are a big problem.
How big a problem? The federal public service pension plan had 561,395 members in 2010 – 317,088 active members and 179,670 retirees collecting pension. Newly retired government workers collected an average of $35,644 annually, retiring as early as 55. Total pension payments were $5 billion.
Here’s where things get scary: total contributions from federal government employees were $1.52 billion, while total contributions from taxpayers were $2.8 billion. Compared to the outrageous pension schemes we’ve set up for politicians and senior bureaucrats, our half-million or so federal employees appear to be a bargain – taxpayers paid only $1.84 for every $1 they paid into their retirement savings. But when you consider that you and your boss will pay $4,614 into CPP this year and every year, so you can someday retire at 60 and collect $8,300 in annual benefits, it still doesn’t seem like a very good deal.
The worst news about government employee pensions is the total tab: taxpayers are on the hook for $147 billion in lifetime pension benefits for these half-million federal employees. That’s roughly equal to the entire assets of the Canada Pension Plan – a plan that’s meant to eventually support nearly every one of the 34 million Canadians. The C.D. Howe Institute actually says the news is even worse. They claim the government is underestimating their obligations for bureaucrat pensions and that our “unfunded liability” is more like $227 billion.
If you’ve read this far, you’re probably tempted to put the paper down, pour yourself a stiff drink, or find a big bucket of sand to go stick your head in.
But help might be on the way. In Switzerland in January, Prime Minister Harper signaled that pension changes are coming in the next budget. Back home in Ottawa, Mr. Harper upped the ante on pensions, hinting that changes are coming to the platinum-plated Parliamentary pension plan.
That will be the first, and very necessary step, to gain the moral high-ground required to reform public sector pensions.
Taxpayers understand there is no free lunch. They also understand that government employees want to put money aside for retirement. Matching both MP and bureaucrat contributions dollar-for-dollar in a pooled registered pension plan, an RRSP, or a tax-free savings account seems more appropriate in today’s reality – maybe even still generous.
Nevertheless, reform is necessary if we want to reign in the exploding pension liabilities that are being foisted upon taxpayers, both from politicians and bureaucrats alike.
