Fixing rich, underfunded member of parliament (MP) pensions is a key step in pension reform, according to a report by the C.D. Howe Institute.
The pension plan for MPs, which covers members of the House of Commons and the Senate, is the most problematic of federal employee pension plans, according to Fixing MP Pensions: Parliamentarians Must Lead Canada’s Move to Fairer, and Better-Funded Retirements.
“The MPs’ plan promises very generous benefits, but has set aside essentially no assets to pay them,” said report author William Robson, 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 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 per cent of pay — with today’s very low yields on sovereign-grade securities, arguably closer to 70 per cent, said the report.
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, said Robson.
MPs should put real retirement saving in a properly funded pooled registered or target-benefit plan, he said. Increases in MPs’ current compensation could compensate for their more modest retirement benefits. The federal government should also legislate more generous limits on tax-deferred saving, giving everyone a chance to achieve retirement incomes closer to what MPs promise themselves, said Robson.
“Canadians need better and properly funded, pensions,” he said. “Federal MPs should lead by example.”
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