MPs Must Lead by Example on Pension Reform: C.D. Howe Institute

By C.D. Howe Institute —— Bio and Archives January 19, 2012

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Toronto, Jan. 19 - Fixing rich, underfunded MP pensions is a key step in pension reform, according to a report released today by the C.D. Howe Institute. In "Fixing MP Pensions: Parliamentarians Must Lead Canada's Move to Fairer, and Better-Funded Retirements," author William B.P. Robson argues that the Pension Plan for Members of Parliament (MPs), which covers members of the House of Commons and the Senate, is the most problematic of federal employee pension plans.

"The MPs' plan promises very generous benefits, but has set aside essentially no assets to pay them," says Robson, who is President and CEO of the C.D. Howe Institute. "Realistically, gaining the moral authority to lead Canada's search for a better retirement income system means MPs must fix their own pensions first." The report notes the MP plan promises much higher retirement incomes than most Canadians can dream of: the implied accumulation of wealth in these plans amounts to more than 50 percent of pay - with today's very low yields on sovereign-grade securities, arguably closer to 70 percent. In addition, the plan has set aside essentially no assets to pay future benefits: a realistic appraisal of its financial condition would show, not the 'actuarial excess' of $176 million that appears in the latest actuarial report, but a deficit as large as $1 billion. "This plan subjects taxpayers to a financial burden and risks that few appreciate," notes Robson. "The pension plans of federal government employees are a major and understated part of Canada's government debt, and the MPs plan is an egregious example."

Robson says MPs should put real retirement saving in a properly funded pooled registered or target-benefit plan. Increases in MPs' current compensation could compensate for their more modest retirement benefits. The federal government, he says, should also legislate more generous limits on tax-deferred saving, giving everyone a chance to achieve retirement incomes closer to what MPs promise themselves. "Canadians need better, and properly funded, pensions," concludes Robson: "Federal MPs should lead by example." For the study click here For more information contact: William B.P. Robson, President and CEO Alexandre Laurin, Associate Director of Research C.D. Howe Institute E-mail: cdhowe@cdhowe.org.