Proceedings of the Standing Senate Committee on
National Finance
Issue 26 - Evidence - October 25, 2012
OTTAWA, Thursday, October 25, 2012
The Standing Senate Committee on National Finance met this day at 10:30 a.m. to study Bill C-46, An Act to amend the Members of Parliament Retiring Allowances Act.
Senator Joseph A. Day (Chair) in the chair.
[Translation]
The Chair: Honourable senators, this morning we are going to continue our study on Bill C-46, An Act to amend the Members of Parliament Retiring Allowances Act.
[English]
This is our second meeting on Bill C-46. Last night we met with departmental officials, and today is our first opportunity to hear from a witness not directly impacted by the legislation. This morning we welcome Mr. Gregory Thomas, who is the Federal and Ontario Director of the Canadian Taxpayers Federation.
Mr. Thomas, we are pleased that you came on such short notice. We are trying to handle this in the usual thorough way that senators handle matters, but also expeditiously because we know coming behind this is Bill C-45 — the omnibus bill, the budget implementation number two — which we have to handle and be done with before Christmas in addition to Supplementary Estimates (B).
This committee is well engaged on matters, but today we will focus on Bill C-46 and the parliamentarians' pension modification. We are very pleased to have you with us to help understand your perspective in that regard. Do you have a few introductory remarks?
Gregory Thomas, Federal and Ontario Director, Canadian Taxpayers Federation: Yes. Thank you, senator. This is a big day for the Canadian Taxpayers Federation. We are very thankful to the Senate and the committee for inviting us to participate.
The process by which we arrived at unanimous consent in the house, and passage in the space of a couple of days, of a major overhaul of the parliamentary pension plan is nothing short of head spinning for people in our organization who have been working on the file for decades.
We believe that we have to give credit to Prime Minister Harper who literally, it appears, dragged this bill as far as it has gotten on his back. He is the only individual in the bill who is retroactively affected. This is the same Prime Minister who refused to take his parliamentary pension from his rookie term in office from 1993 to 1997 when he campaigned on a solemn pledge not to take a pension. He and three colleagues from his party stand alone in that regard. The other 50 or so of them abandoned their solemn pledge to the electors of Canada.
He essentially stands alone from that class of 1993 trying to uphold his commitment. You say that perfect is the enemy of the good. The bill we have in front of us is a long way from that ideal that was expressed in 1993, but it represents a much better deal for the taxpayers of Canada.
I sit before you, and I have been in this role for a little over a year, there are literally hundreds and thousands of staff, agents and supporters of the Canadian Taxpayers Federation who have signed petitions, travelled from farmhouse to farmhouse, shop to shop, and home to home gathering signatures on petitions. The response to pension reform for parliamentarians has grown over the years. We calculated that with the 2.5 per cent quarterly interest that was going into the fund, as it grew and surpassed $1 billion in assets, taxpayers' contributions were amounting to over $24 in the 2010 fiscal year and probably over $25 in the current fiscal year for every dollar that parliamentarians contributed to their own pensions. We asked supporters if they would send us $24 to put up billboards and have a plane flying around Parliament Hill and the response was just overwhelming.
We were able to raise thousands and thousands of dollars on very short notice, so this is an issue that viscerally affects Canadians. We are pleased that Parliament has acted.
As you can appreciate, we have been digging around with the parliamentary pension plan, the actuarial reports and some of the finer points for some time. We have some issues about transparency and accountability that I think would be of interest to the senators and the way in which the results of the plan are reported to Canadians.
We also have some concerns about the transitional aspects of the bill. Perhaps I can end my introductory remarks there and we can explore some of that in the time we have.
The Chair: I have just a point of clarification. Did you mean to imply that the Prime Minister is not now drawing or accumulating pension rights under the current pension plan?
Mr. Thomas: Yes. Parliamentarians were given an option in 1997 to either opt in or out of the plan on a one-time basis. Three members of the House of Commons at that time refused all of their pension rights; only three did so.
The Chair: Do you remember who they were, just for interest's sake?
Mr. Thomas: Yes. They were Preston Manning, Lee Morrison and Werner Schmidt.
The Chair: Not Deborah Grey at that time?
Mr. Thomas: Not Deborah Grey, no.
There is appalling hypocrisy from some of those people who hounded the incumbent MPs into the grave in the 1993 election. These were people who had served Canada for decades, honourably and well, and were depicted as some kinds of low-lifes for taking the pension to which they were legally entitled. Then these same accusers turn around and walk away with multi-million dollar pension entitlements years later. It is a sad chapter in Canadian history and one that people deserve to be reminded of from time to time.
The honour and the integrity of the people who walked away from this place without their pensions just because they said they would deserve to be honoured, as well.
Prime Minister Harper was a rookie MP, served a single term and then left office. To date, he has never claimed those pension rights, although he is entitled to. He has stated publicly —
Senator Mitchell: He had no pension rights.
The Chair: Let the witness finish and then we will have a period for questions.
Senator Mitchell, please; I do not want a discussion. I will recognize the senators who are involved.
Senator Mitchell: I apologize.
The Chair: If you could just direct your answer to the committee as a whole, that would be appreciated.
Mr. Thomas: That was not a question, was it?
Senator Mitchell: I am sorry, Mr. Thomas. That was my fault.
Mr. Thomas: I am sorry, too.
The Chair: The point I wanted to get to was whether your federation would support the option of parliamentarians opting in or opting out of a pension plan. Would you?
Mr. Thomas: Yes.
The Chair: Is it your understanding that the option is not there at the present time?
Mr. Thomas: Yes.
The Chair: Thank you.
Now I will go to the deputy chair of the committee, Senator Smith, from near Montreal.
Senator L. Smith: Thank you, Mr. Chair.
You talked of transparency transition. I guess your comments were fairly brief in terms of introduction. Are you pleased with the fact that the Prime Minister and Parliament has actually put this through in terms of passing the legislation?
Mr. Thomas: Yes. Our organization regards this as one of the best days in our 22-year history. We are very —
Senator L. Smith: There is a smile on your face, then, in terms of this being positive news? You seem to be very sombre.
I guess you mentioned two points of transparency transition. What are some of the questions that you would like to talk to us about today?
Mr. Thomas: We lack the legal and technical resources of this committee, so perhaps you could step us through this as we have this discussion. However, it is our understanding that the intent of the legislation is to essentially grandfather existing parliamentarians with their existing rights so that a member of the other place would be able to retire and begin collecting benefits at age 55, using those benefits that they have earned so far.
There is some question that, if an election were to take place, there is some kind of guarantee in the legislation that, at the end of the current Parliament, when the next Parliament is sworn in, people who are elected for the first time in the next Parliament or people who join the Senate in the next Parliament will have the later date of 65. If an election were to take place prematurely, would the legislation cause a whole new class of pension entitlement that is not anticipated in the legislation? That is a question we have.
The other issue is the question of members who might serve under both systems. Eventually there will only be members who are elected after this legislation takes effect, but how will the accruals and the entitlements be affected? Will parliamentarians be able to receive benefits at 55 for service up to the transition date, and then future accruals will only be available at 65? That is a question.
Also, we know that there will be opportunities to take a penalty and take an early pension. We would be happier if these corresponded exactly with the Canada Pension Plan and Old Age Security regulations. With the Canada Pension Plan, the penalties for taking CPP benefits early have increased and the bonuses for taking them later have also increased. We would like to see this legislation reflect the same treatment for parliamentarians.
We would also like to see that parliamentarians march in lockstep with all other Canadians regarding the increase in entitlement age for Old Age Security benefits. We do not expect that the jump to age 67 will be the first; we expect it will be the first of many incremental changes as the population becomes healthier and lives longer.
It would be nice, but getting parliamentarians to focus on reforming the pension plan is such a difficult process. We would be very pleased if the Senate could answer some of these questions in the course of this review. We understand that it just may not be possible.
We also stand outside what you would describe as the mainstream Ottawa consensus on what pension or retirement savings for parliamentarians should look like. It would be good to have a chance to address that. We recognize that our philosophy was not carried out in this legislation and that it is a compromise.
If I may have a couple of minutes of airtime to talk about the philosophy of an overwhelming or a substantial number of Canadian taxpayers regarding retirement savings for politicians, we would appreciate that opportunity.
The Chair: Now is your opportunity.
Mr. Thomas: We are pretty happy with recent changes to the Canada Pension Plan. It represents an onerous burden on all Canadians who pay into the plan, and on employers. However, by actuarial standards, the plan is well funded, and that provides a measure of confidence to all Canadians. The proceeds of the contributions are invested, and they are invested professionally and independently.
On all sides of the political spectrum, there is consensus that the investment decisions of these professionals should not be interfered with by politics. You actually have Canada Pension Plan funds invested in different things that people disagree with, but the underlying objective is to deliver cash flow to cover the cheques that go out to retired Canadians.
The parliamentary pension plan is an unfunded defined benefit plan similar to all other public service plans and plans for the RCMP, the military and retired judges, but there are a couple of problems with it. We have become very high profile by taking proposed legislation, applying it to individuals as they leave Parliament, and estimating what their lifetime retirement benefits might be and what their annual retirement income will be. That is public information about public funds. There is no reason why the legislation should not provide for this calculation to be available to the public. We believe it should be applied across government. Canada would work better with a more efficient labour market and accurate information on compensation, not only wages but also benefits, salaries and lifetime earnings from pension annuities. This should be made more broadly available to all Canadians. That would facilitate employers, including government, getting the best people. It would also facilitate Canadians making informed decisions about where they should work and what kind of work they should do. We believe that the level of opaqueness with which pension benefits are dealt out serves to keep the public and taxpayers in the dark about what government employees are earning; and that it does not serve the labour market or Canadians.
We think this information should be on the Internet. You do not have to put people's names on the information, but a person should be able to go on the Internet to see what kind of pension a prison guard or a Mountie or a senator or a member of Parliament would have. It would facilitate a more efficient labour market. That is the first thing about information.
Government pension plans represent a substantial segment of the economy. We are developing two economies: a non-government economy and a government economy. In the government economy, when you retire you are guaranteed an indexed annuity for life, which is an obligation of the federal or provincial Crown. Outside of individuals, the rest of the world does not know what these are.
Compare two scientists or two engineers. One goes to work for the National Research Council and the other goes to work for Nortel. These two friends graduated from the same class, had the same level of accomplishment and may have made equal contributions. One may have developed a patentable technology and the other may have been active in partnering with Nortel to get that done, but one of them got clipped on their pension. They are both elderly, being in their eighties. One lost a huge portion of retirement income. Pensions matter.
Here is the thing: Given the nature of these pension plans, the government worker, who wanted to move to Nortel, may have had an offer and could have made an amazing contribution at Nortel but decided not to do it because he wanted to keep the government pension. The Nortel worker, who could have moved into government and made a tremendous contribution to bringing the Nortel values-of-the-day to government did not make the change either. We see this with school teachers who will not take a job in a different school district.
Senator Hervieux-Payette: Mr. Chair, I have a point of order. We are discussing senators and members of Parliament. Mr. Thomas is talking about civil servants, who fall under another law. We will hear those arguments at another time. We are not talking about the civil service today; we are talking about members of Parliament. Actually, I do not mind the witness' arguments, but he can make them later. For now, we should focus on the bill that is before us.
Senator Mitchell: That is right.
The Chair: Senators recognize the anxiousness of the government for us to move this along. Comparisons are helpful, quite frankly. Perhaps you could bring your comparisons back to focusing on this piece of legislation.
One point I take from your comments is on funded versus non-funded pension liability. That is a very important issue that we should be talking about. We thank you for bringing that one to our attention.
Senator L. Smith: Following Senator Hervieux-Payette's comments, let us stay focused on the proposed legislation. What I am hearing is very interesting, but it seems to be a national commentary on pensions across the board. I did not realize that was the objective of today's meeting and witness. I would like the witness to stay focused on what we are trying to achieve. It is a tremendous step on behalf of the government and all parliamentarians, whether MP or senator, to get involved in making a greater contribution to pensions for senators and members of Parliament. The initiative hopefully will be well received by the public. Let us stay focused on what we are trying to achieve.
The Chair: Thank you, and that is enough comment on that.
Senator Hervieux-Payette, thank you for your comment and your intervention.
Mr. Thomas, we will try to stay focused on this bill and what changes you see that could improve it. We are always interested in looking at proposed legislation from the point of view of unintended consequences and how something in a bill might impact the country or those involved in a manner not anticipated.
Senator Buth: My questions were taken up by Senator Smith, so I do not have any questions at this time.
Senator Mitchell: Mr. Thomas, I should defend your comparisons because they are important. Some of your argument and some of the argument of the government is the comparison to private sector pensions, which ones and at what level.
For clarification, Mr. Harper was first in Parliament from 1993 to 1997, so he would not have vested and would have had to win two elections in six years. He left early and caused a by-election, which was unnecessary and probably cost $300,000. If you invested and saved that money, it would be about $1 million today. Thanks for defending him, but he is not the saint in this that one would think. I would like to know whether he has bought back those four years. He might well have had the opportunity to do that.
Senator L. Smith: Senator Mitchell, I thought we were supposed to be talking about MPs and senators and here you are bringing into the argument an individual. We are not talking about individuals. We are talking about the pension plan.
Senator Mitchell: He raised it.
Senator L. Smith: Why do you not get off this personal discussion point?
Senator Mitchell: He raised it. Maybe you were not here.
The Chair: Order, order.
Senator Mitchell: He raised it, just for the record. Anyway, let us go on.
Senator L. Smith: Why do you not stick to the point?
Senator Mitchell: The point is that the Prime Minister cost us $1 million.
Senator L. Smith: You embarrass, downgrade and really talk in negative terms about an individual. We are not talking about individuals.
Senator Mitchell: He was.
Senator L. Smith: Yes, right, but maybe he should not be. Are we not talking about impacts on an MP and on a senator? Why do we have to get involved with wanting to identify every person in this country and finding out exactly what he is earning? What about privacy of the individual?
Senator Mitchell: I would like to follow up on your point about prudent management of pensions, because I absolutely agree with you on the information issue. I think it is very important, particularly for an MP's and a senators' pension.
I was in the Alberta legislature. If you go back to the Alberta public accounts, every year they list it. They probably list what I am making and what my pension is. Just for the record, it is $25,000 a year. They probably list that for everyone, and that is great.
I would like to get your opinion on this: One of the problems we have with senators' and MPs' pensions is that there is no pooled fund. There is no fund that the money actually goes into. The government does not pay their share. They never have. My money for my pension goes into general revenue, and the payments to whomever is getting it come out of general revenue. Would it not be much more prudent, much more significant and fiscally responsible management for us to put our share into a pool and have the government's matching share go into a pool? We could see how it is being managed. We could understand the assumptions and see whether the returns are reasonable and could actually price it properly. We could show everyone what it is.
The downside, the flip side of that, is that there is quite a huge unfunded pension liability accruing with MPs' and senators' pensions right now, unfunded debt that the government is not recognizing.
Mr. Thomas: I appreciate those points, Senator Mitchell. We are concerned that the Office of the Superintendent of Financial Institutions, the Chief Actuary of Canada, only reports on the parliamentary pension plan every three years. We have a large shop over there of highly qualified staff. Canadians are keenly interested in the health of the plan. Why do we have to wait until 2017, or whenever, for the next report?
The Canada Pension Plan had their annual report out 90 days after their year-end. The President of the Treasury Board dropped this five days before the one-year anniversary of the year-end, so we get information on the parliamentary pension plan a year late. It should be in the legislation that the parliamentary pension plan reports on the same standards as every other private company and every other pension plan in the country. Why do the Ontario teachers have to come clean with their members within 90 days of their year-end and Canadians have to wait almost a year to find out?
One of the problems we have as an advocacy group with regard to information is that we still do not know how retirement after the 2011 election affected the cost of the parliamentary pension plan. James Fitz-Morris of the CBC reported that in the last five years the Government of Canada has had to make three special actuarial payments on the retirement compensation arrangement portion of the parliamentary pension plan because that portion was underfunded, even with 10.4 per cent interest being paid into it.
The Chair: In this legislation that provides for the Chief Actuary to advise the government, the minister makes a decision based on the actuary's projections and pays into the fund the anticipated amounts on an annual basis. If too much goes in, they can take some out. Would you make some changes to that? That is annual.
Mr. Thomas: To be clear, when pension plans do badly with private businesses and the employer has to top up the pension plan with a special adjustment and take a quarterly earnings hit, CEOs get canned over things that impact earnings like that. We applaud Parliament for cutting its interest rate from 10.4 per cent effectively compounded quarterly to something like 4.7 per cent. The Chief Actuary said in the 2010 report that that interest rate was inappropriate, and the Office of the Superintendent of Financial Institutions had been interacting with Parliament repeatedly and vociferously, saying, "Look, it is 2010, not the year 2000."
Senator Mitchell: We would have to pursue this, because yesterday we had the Treasury Board here. It is not clear what the relevance of that interest rate is because there is no pool of money invested to cover our pension. Our money goes into general revenue, and they pay out of general revenue.
That raises the question of pricing. I do not think you are disagreeing, and I do not think we are either, that we should pay for 50 per cent of the pension. We do not really know what the pension is worth. There is some real suggestion the Senate pension is less costly because we collect it for a shorter period of time because we generally collect it later and then we die, whereas MPs generally collect it earlier and live longer. There is some question about that, but let us just look at the numbers.
For example, let us take a senator who pays into it for 25 years at these new rates. It is not 32. It will actually be about 35, because the CPP will be into it. That is about $800,000. Then you add the earnings on that over 25 years at 5.2 per cent, which is the new earnings. That is about $2.3 million accrued over 25 years. Now the senator is 75, and there is $2.3 million of the senator's contribution in there. They will get a $100,000 pension. They will have to live to 98 to get their own money back, and the government has not paid a cent.
Have you actually priced the value? Is there any information that you have and we do not that actually prices the value? I do not think that senators or MPs should pay any less than 50 per cent, and maybe they should even pay some more, but I would rather that people were not misled to the extent that the government may not be paying anything at all if this were properly managed and our money went into a pool and it was properly managed. There would be no cost to government at all, and you would be happy with that. Have you got a price?
Mr. Thomas: We actually joke that maybe the new legislation should be renamed. The British North America Act was renamed the Constitution Act, 1867, and maybe this legislation should rename the previous pension act Maygan's Law, because a 23-year-old spouse of a senator with a lifetime pension entitlement, 60 per cent of a 69-year-old senator's earnings, would be the big winner in the previous regime.
You could argue that one of the unintended consequences of this act is that senators over-contribute. Maybe one of the tweaks you should look at with your advisers and recommend to the government is some kind of optional return of contributions or return of contributions and income. When a prime minister is trying to recruit a senator at an advanced age, it would be a real shame for those who believe in the function of the Senate and the job it does for a senator's financial adviser to say, "With the level of contributions you are going to make and your life expectancy, you are further ahead to stay in the private sector and not do it at all because you are going to end up a loser on this."
The Chair: Do you anticipate that as one of the consequences of this legislation? Is that what you are saying to us?
Mr. Thomas: I am just following on the observation that Senator Mitchell made when you are looking at more than a tripling of the contributions and Prime Minister Chrétien's habit of appointing a lot of 70-something senators —
Senator Mitchell: Actually, his average appointment was about 55.
The Chair: Senator Mitchell, I will put you down for round two.
Senator Mitchell, I will have to ask you to leave if you will not pay attention to the chair. You are disrupting the meeting. We will not get anything done. I am sorry to have to say that.
Senator Marshall: Thank you for being here this morning, Mr. Thomas.
Earlier in your remarks you were talking about the research capabilities of your organization. Have you done a detailed analysis of the bill?
Mr. Thomas: No, it only dropped last week. I was out of the country and before I even got back it had passed the House of Commons.
Senator Marshall: Earlier you were talking about the issue of transparency, the need for information on individual parliamentarians — not by name — and that the actuarial report from the Chief Actuary should be more frequent. I think you said it should be on an annual basis. What other issues have you raised with regard to transparency?
Mr. Thomas: We believe that if you stand for office then it is fair for Canadians to know what a politician's compensation is. If they are a member of the Canadian Parliament, I think their lifetime compensation is public information.
I mentioned getting an annual report on a timely basis and being able to have it shortly after the year end as opposed to waiting a full year. I apologize for wandering with regard to the overall labour market, but the only point I was raising is that a pension should be portable and that should even apply to parliamentarians.
We believe Canadians deserve a system of retirement savings where parliamentarians and senators could move to any other job, take their pension entitlements with them, and that the tax treatment of parliamentarians would be the same as any other Canadian. They would get the same deductions and entitlements relative to how much money they were earning. It would not matter whether you earned $132,000 as a senator, a teacher or a cop; a certain portion would be taken into retirement savings.
You would have retirement savings in your name pooled for you and could make a decision about leaving the Senate, returning to the private sector or joining a think tank. You would say, "I cannot leave the Senate because I am not vested." Those things mess up the labour market. That was the point I was making.
Senator Marshall: The Treasury Board has some information on the parliamentarians' pensions on their website. Has your organization ever looked at that to determine if this is valuable information or if it should be done differently?
Mr. Thomas: Yes. We probably account for most of the hits on the Treasury Board website. We prepared our own report, which is online on our website. A research director autographed a copy and gave it to the President of the Treasury Board. We had an extensive meeting. Our concern is mainly the delays in getting timely information because there are so many moving parts to these government pension plans.
There has been a lot of controversy with the government in past days about raiding pension plans to pay off deficits and paying out. Government employees were getting cheques in the nineties because the stock market was so hot. People were getting payouts because their contributions were deemed to be excessive. That was all based on actuarial assumptions that were hooey, including life expectancies, economic growth rates and interest rate projections. Suddenly the oracle declares there is too much money and healthy people in the middle of their working lives get cheques and go out and buy campers and everything. It messes up the economy because it causes an already overheated economy to overheat more.
We think that the retirement savings of all Canadians, and their participation in the labour market, is badly affected by the existence of these pension schemes. They have disrupted our labour markets and the parliamentary pension plan is a fine example. Parliamentarians cannot lead their lives and make decisions on whether to leave or continue serving because of these arbitrary rules.
Senator Marshall: Generally speaking, what I am taking from your testimony this morning is that you like what is in the bill, what you have seen so far, and you think we are moving in the right direction. However, you earlier referred to some areas where you thought there could possibly be some tweaking, plus you would like to see some enhanced and more frequent reporting.
When I was asking about detailed analysis, I was under the impression that your organization would do further analysis of the bill down the road and that this is not the end of pension reform for your organization; you will keep on going.
Mr. Thomas: We will. What we find frustrating is that it will be years. It will not be until next March that we get the first glimpse of how the retirements of 2011 affected the viability of the plan. It will be years until the actuary weighs in, and that is the crew and people with the real expertise. We know that even at these notional interest rates of over 10 per cent, the government has still had to put in additional taxpayers' dollars three times in last five years. It was James Fitz-Morris from the CBC who brought that up.
It is not a model way of doing things. We have to wait for the actuary; we do not have the expertise or information to make a prediction like this. However, I would not be at all surprised, even with parliamentarians tripling their contributions because of the reduction in the interest rate, if the actuary came back and made Parliament get taxpayers to contribute additional funds in years going forward to ensure the actuarial viability of the plan. In other words, I am saying it is very possible that it will not deliver what it is advertised to deliver, which is a dollar-for-dollar matching contribution between parliamentarians and taxpayers.
Senator Marshall: I cannot dispute your comments on the reporting. Thinking back on the new act, I do not think there is anything in there about enhanced reporting. Your comments are taken and I thank you very much.
[Translation]
Senator Hervieux-Payette: I would like to place the pension issue in context. Let me first say that I have a great deal of sympathy for my colleagues in the House of Commons.
For starters, organizations such as yours talk as if all members of Parliament are sure to receive staggering pensions as soon as they walk in the door of Parliament. You are not pointing out the fact that they have to sit for 15 years, which means that they practically have to get elected five times. So we are actually talking about quite a considerable challenge. As to the number of people who qualify for that, the public at large is under the impression that 300 people will get a large sum of money at the end of their careers.
My colleagues in the House of Commons work on average 60 hours a week, whereas the average worker puts in 35 to 40 hours a week — those are the people you are comparing them to. Members of Parliament take almost no vacation and do not even have the time to get sick. Unless they are dying, my colleagues come to work — and I am talking about all members, be they Conservative, Liberal, or NDP. In terms of wages, I do not need to look very far. I was an MP, and, when I came to the House of Commons, my wage was lowered by 50 per cent. My wage also dropped by 50 per cent when I came to the Senate. There are people who think that serving their country has more value than the cost of doing so. This has not happened only to me; many people in both the Senate and the House of Commons have seen their wages decline.
When you compare our pensions to pensions in the private sector, I always feel that it is not necessarily done in good faith and in a transparent and honest fashion, which is what we expect from an organization like yours. You are comparing apples and oranges.
I have not talked about sick days, vacation, pensions and wages. Those are the four features included in a contract of employment.
Once elected, our contract of employment is with hundreds of thousands of people. The way we work is completely different, and our job becomes uncertain every four years. In recent years, Parliaments have changed every two years, at most. So you are not considering the risk factor in those circumstances. You are suggesting that all those people will leave and abuse the government funds.
My intent is to bring those facts out in the open, and I challenge you to look at the rest. Why would someone, who could make $200,000 per year somewhere else, come to work here for $130,000 or $150,000 per year? However, if you are elected at the age of 22 you make $150,000 per year instead of $40,000. There is room for improvement. Perhaps we should have a ceiling for all parliamentarians, regardless of their wages before they come here. However, there should be an adjustment for all Canadians who want to contribute.
I would like to hear your comments on pensions in relation to wages and working conditions, because you are not considering those factors. I would like you to take that into account. When you do your studies and you address the public, it would be nice to give the impression that you recognize that those people are devoting a part of their lives to their constituents.
When you work at McDonald's, you also devote a part of your life to serving people, but not to the same extent and you do not work 60 hours a week — unless you work overtime, in which case you are paid accordingly. You cannot have it both ways. How about paying members of the House of Commons for the 25 hours of overtime they do per week?
You are creating a myth that says, at the end of the day, that you have won your argument, because your association has been promoting it for a long time. All I am telling you is that our colleagues in the House of Commons are being treated unfairly. They have to show up and sit for 25 years to be eligible for the full pension. So you probably end up with only half of one percent of the members of Parliament who qualify. You are talking about something that will not happen.
So could you comment on that?
[English]
Mr. Thomas: Thank you, senator. I do take the point about the capricious nature of the previous plan and the existing plan. Senator Mitchell referred to the Prime Minister's service when he did not serve a full term in the 1993 Parliament. Had he never returned to Parliament, he would never have benefited from any pension benefits at all. There is a member of the other place from Newfoundland who has five and a half years of service — he is 38 days short — and has won multiple elections, including a by-election. However, because of his misfortune and the caprices of this plan, he gets nothing. James Moore, who is 37 years old, has already accrued a $2.8-million pension annuity, which could grow to $3.8 million by the time he is 41 or 44.
It is a capricious and unfair way of compensating people for the work that they do, and it is not transparent.
As I say, we have inquired with the Prime Minister many times and he has stated publicly, and his office has stated in writing, that he has not bought in for his pension entitlement for that first term and he has no intention of ever doing so. Now he has literally coughed up another million or two of personal pension entitlements to drag this reform over the finish line. Therefore, we continue to give kudos to the Prime Minister for leading by example.
Our argument is that every parliamentarian should be allocated some money for retirement savings — money that should be available to them like any other Canadian with the same tax protections as some proportion of their income, and that they can take with them. If Senator Smith is called back to rescue the Canadian Football League yet again, he should not have to say, "Well, I have to wait until I have six years in the Senate to do that." The money he has earned should be his money and he should be able to take it with him.
We talked about members of Parliament being able to put $23,000 into their RRSPs — they could max out their RRSPs like every other Canadian. After one term of office, depending on how it was invested, they would have somewhere between mid $80,000 to over $100,000 saved, and after two terms they might have a quarter million dollars of retirement savings from having spent eight years in office. That would be instead of having this magical barrier at six years of service where you are either in or out, and if you are in, you get a lifetime annuity, and if you are out, you get nothing.
I think every parliamentarian could look their constituents in the eye and say, "Yes, I get a matching RRSP contribution like you do. I max out my RRSPs. It is all invested, and it comes off every cheque. That is what I get." I think Canadians would have a lot more respect for Parliament if that is the way it worked.
Senator Hervieux-Payette: I am sorry, but if we do the six years and my colleague is leaving — maybe he should save the Canadiens first — he would receive 18 per cent of the whole pension after six years.
As you say, I had five years and seven months. I walked away with my contribution — goodbye — and put it in my RRSP, as you mentioned. Why? I did it because the return on the investment was so low that it was not worth leaving it there, so I took it away because there was no advantage to leave it. When I came back to the Senate, they asked, "Do you want to buy it back?" I said, "No, because the return is not good enough."
Do not build this mythology that when the money is in the hands of Parliament and being managed at the Parliament level that we have a big advantage. I asked the researcher to check something. It is 18 per cent for six years and then you add a certain percentage every year until you reach the maximum after 25 years.
There are no millions of dollars — the millions of dollars for one person. Most of the people in the house will never get to the maximum; the great majority — 90 per cent — will not, so we are talking about a small number of people. You put that as a gigantic envelope that the poor taxpayer will have to pay.
I am telling you that for the work they are doing right now, I do not think they are rewarded properly. Their whole package is a package the same as for any worker anywhere else.
As far as Nortel, I can tell you we had a diverse point of view in our committee about compensation there, and they should have been dealt with differently.
Be transparent like you want us to be and be fair also and say that the people will just get one fifth of their pension after two elections. At least you know it will be fair and people will understand. If you are in the private sector, yes, we recommended to the government to have a portable pension so that when you change employers, you walk away but you continue to build your pension along the way. I had that choice and I am sure that if we leave after seven years, we can walk away and just collect the 18 per cent — or at that time probably 22 per cent.
However, these are theoretical gigantic holes in the budget of the government that, as far as I am concerned, even with 300 people in the house, we will never see such a big amount. Yesterday, we were told it was over five years and $29 million on a budget of over $250 billion.
If you want to look at saving, maybe look elsewhere.
Mr. Thomas: May I comment? Is it within your rules?
The Chair: It is within my discretion to allow you to comment, with justification.
Senator Mitchell: Oh, yeah, for sure. You and I agree on that.
Mr. Thomas: I heard the translation when the senator talked about the honesty of our arguments at some point and discussed the integrity of our organization as it approached this issue. We have never been publicly rebuked for the numbers we put out with regard to the parliamentary pension plan. The math is pretty simple for the issue of 20 per cent of an MP's salary after six years. For the last six years served in Parliament, they put in about $11,000 a year. We have all the names of the individuals who left and the smallest pension is about $28,000 a year.
The Chair: This proposed legislation is moving that up from $11,000 to $38,000.
Mr. Thomas: Under the old deal, you could put in about $66,000, and as soon as you were done, you would start getting $28,000 a year. Well, that is a heck of a deal. You cannot dress it up.
Senator Hervieux-Payette made reference to parliamentarians working 60 hours a week and the average Canadian working 37 to 40 hours per week. Like, give me a break. What planet are we talking about here? My wife was a mortgage broker. She took our daughter to a mortgage appointment two days after my daughter was born.
The Chair: This is getting a little away from the legislation.
Mr. Thomas: My father was a farmer. He got up at 5 a.m. to do summer fallowing; came home and napped for half an hour; and we took his dinner to him in the field at 9 p.m. Canadians do not work 37 to 40 hours a week. People work their guts out. We were hailed out one year and our family lived on $800. My dad was not working 37 hours that year, I have to tell you that.
The Chair: We understand your point. We are dealing with parliamentarians' pensions.
Mr. Thomas: My sister is 63 years old. She works for the National Research Council on contract. She works evenings and weekends.
The Chair: Thank you, Mr. Thomas.
[Translation]
Senator Bellemare: I would like to thank the witnesses for appearing before the committee today. In terms of pension plans, there are a lot of equity issues. In addition, as the population ages, there will be more and more equity issues between the private sector and the public sector; between the federal government, the provinces and the municipalities; and between generations as well.
In terms of transition rules, this bill will solve the equity problem by requiring parliamentarians to pay 50 per cent of the cost of their pension, which is a good thing, in my view.
The bill specifies that the members of Parliament will be contributing 50 per cent by 2017. Do you believe that the transition period is too short and that it should be longer?
[English]
Mr. Thomas: I believe the transition period is not a formula that the Canadian Taxpayers Federation would write. In the 1990s, we had a pension rebellion in Alberta against pensions for members of the legislature. The premier walked away from a discussion he had in front of a media scrum with the then director of the Canadian Taxpayers Federation, walked into his caucus and scrapped the pension plan entirely on a retroactive basis. There were serving members of the Alberta legislature who walked away with no pension entitlements at all, although they had entered public life with the expectation that they would be getting one.
I am not from Alberta, so Senator Mitchell can correct me if my history is wrong.
Senator Mitchell: I can answer that if the chair asks me, but he will not.
The Chair: Carry on, Mr. Thomas. Please do not invite other senators to make comments.
Mr. Thomas: The workers of Aveos in Montreal came to work a couple of months ago and found the place padlocked and the company in bankruptcy. There was no severance, workplace adjustment, competition or training allowance. There was zip, zero, nada.
I think this reform is long overdue. Our supporters would not have been quite so generous with the transitional provisions, but it is the biggest reform to parliamentary pensions that we have seen in our history. We recognize it, salute it and are grateful to parliamentarians on all sides of the house for supporting it.
[Translation]
Senator Chaput: Mr. Thomas, I understand the objective of this bill and I understand that, in terms of the pension plan of parliamentarians, it is fair for them to contribute 50 per cent. However, what I am worried about, and what I do not understand, is that the bill goes as far as recommending harmonizing the Canada Pension Plan with that of parliamentarians.
In my mind, I think that all Canadians have contributed and contribute to this plan since the first day they have had a paid job. They have put in their own money and they get it back. Why add this harmonization? Why include this approach in the bill?
When parliamentarians receive their pension and the CPP, why is their pension reduced by the amount they receive through the CPP? Why would the pensions be harmonized? I am not an economist, but I think it is unfair.
[English]
Mr. Thomas: You may want to have an actuary or pension expert discuss that with you. One of our concerns —
[Translation]
Senator Chaput: What do you think about that, Mr. Thomas?
[English]
Mr. Thomas: I can offer opinions, but I cannot offer expertise because I am not an actuary and I am not steeped in the interactions of pension entitlements.
The Chair: It is a policy matter more than that, is it not? Treat them as separate pensions or combine them. We do not need the actuary's comments on that, although we may have it when the actuary appears before the committee.
From your point of view, you see different pension schemes and are quite critical of what has been the pension scheme for parliamentarians. The new proposal, as Senator Chaput has pointed out, is that your Canada Pension Plan entitlement will be deducted from the parliamentary pension. From a policy point of view, what is your reaction? I believe that is what Senator Chaput was talking about.
Senator Chaput: Yes, thank you, Mr. Chair.
Mr. Thomas: This provision is quite common across government employee pension plans and the Ontario Teachers' Pension Plan. Most government employee pensions are designed to integrate Canada Pension Plan benefits, Old Age Security and workplace pensions. They are very complicated, which makes trying to discuss pensions in the public forum tough, the way we do it, because people's eyes glaze over.
The Chair: Thank you. We agree with that.
Mr. Thomas: Previously, parliamentarians would collect their parliamentary pension and their Canada Pension Plan. Most government employee pensions and workplace pensions integrate with Canada Pension Plan and Old Age Security benefits, and that is to the tax advantage of the beneficiary. As we work towards a better pension system that is fair, both across government and outside of government, I think parliamentarians should move into the common practice. It seems to me that the common practice in pensions is integration with the different benefit programs.
Senator Nancy Ruth: Mr. Thomas, this is a piece of legislation I am very proud of the government for. I have been confused by a number of things you have said.
You raised the issue of pensions being vested at six years. Can you tell me of other major corporations that give pensions that do not vest at six years? Is this not pretty much a standard in the industry?
Mr. Thomas: The fact is that outside of government these kinds of pension plans are going the way of the dodo. The Royal Bank just dumped theirs. Bell Canada dumped theirs when they took over CTV. The Export Development Corporation, wholly owned by the federal Crown, just dumped their pension plan.
In terms of vesting provisions and what the common practices are, the fact is that we have gone from a quarter of the workforce outside of government having such a plan, to 11 per cent. I would say that certainly in our lifetimes, probably in the next 10 years or so, Canadians who do not work for government, the number of them who have some kind of pension like this — and certainly new hires. There will be no new hires who have a pension scheme like these government pension schemes, because they are a nightmare.
Senator Nancy Ruth: However, it is the tradition of the industry to vest at six years. You are suggesting it would be nice to change that tradition, but it has not been unusual, historically. That is correct, right?
The Chair: Mr. Thomas on that? "Yes" or "no," if you can, or "I do not know."
Mr. Thomas: I take Senator Nancy Ruth's expertise from her long service as a corporate director.
The Chair: That is your only source of information?
Mr. Thomas: We are the taxpayers' federation, not the corporate government's federation.
Senator Nancy Ruth: The issues you raise about portability are interesting. They would certainly service some people. I tend to have great empathy with the comments of Senator Hervieux-Payette. However, if we had no pension here, would it not be true that salaries would have to be increased to compensate for private pension plans that MPs and senators might choose to make, in which case it still is a cost to the taxpayer; it is just another way of paying the cost?
Mr. Thomas: That is an argument that we hear a lot. Our response is that if you look at the laboratory of the real world, in Alberta they have had a variety of pension schemes. The Alberta legislature had no pensions. Then they introduced multi-million dollar transitional allowances and the public rebelled against that. Now they will be going to just regular, everyday RRSP contributions, after a long debate. I cannot see where the quality of Alberta legislatures has varied much, regardless of how many millions of dollars of taxpayers' funds Alberta politicians have managed to harvest from taxpayers in compensation for their service.
If you want to look at another excellent lab experiment, you have the province of Ontario, where you not only have a legislature and a Parliament, but they have identical electoral boundaries and identical numbers of politicians. Ontario politicians get no pension whatsoever, and federal politicians have the most lucrative pension in government.
If you go back since the mid-1990s, when this reform was instituted, I defy anyone to tell me that the 108 members of the federal delegation surpassed the 108 provincial member in expertise, qualifications, education, hours of work, dedication to getting re-elected, or any of the metrics.
Senator Nancy Ruth: You are quite right. None of us will argue that one.
However, you would agree, then, that probably there would be an increase in salary if there was no pension scheme to compensate, as an employer, in which case there is still a burden on the taxpayer? Is that correct?
Mr. Thomas: Ontario manages to staff its legislature with no pension plan and lower salaries than the House of Commons.
Senator Nancy Ruth: Have the salaries increased since Mike Harris removed the pension schemes from Ontario?
Mr. Thomas: Yes, but I do not think they have increased faster than the federal.
Senator Nancy Ruth: The taxpayer is still paying. I am suggesting that it is one way to do it one way, and it is one way to do it another, but there may be no benefit to the taxpayer. We all pay.
Thank you very much, Mr. Thomas.
Mr. Thomas: Thank you, senator.
Senator McInnis: I would like to pick up on the senator's comments. In my past, I spent 15 years in a provincial government and cabinet, and I just wanted to underscore what a couple of senators have said here today, apropos your comments a moment ago.
It is becoming increasingly more difficult to attract quality individuals to run. In my experience — and I will discount myself by being ably qualified or anything like that — but I was 32 years of age when I was elected and I went into cabinet. I had a good law practice. I had a business that was doing business with the government. Back then there were no blind trusts. There are now, but there are difficulties with that. I had to exempt myself from that for 15 years. At the age of 47, I lost in the 1993 election.
I want you to know, as a lawyer, a practising lawyer, that it is not easy to go back into the practice of law. All those corporate people and professionals that you dealt with as a cabinet minister, for some reason they do not know you quite as well as they did when you were an elected official. I made this comment to a commission on pensions that just wrapped up earlier this year in Nova Scotia, because pensions, of course, are a big issue.
The Chief Justice who was chairing that commission, said to me, "Mr. McInnis, would you say you were tainted as a politician?" I said, "Well, 'tainted' is a strong word, but yes."
My point is that you can be summarily dismissed by the public in an election after six years, after four years, after ten years, and you have to pick up your career. Therefore, pensions have to, in some way, reflect that. As my learned friend to the left has just said, will that be salaries? That will be a cost. Those are things that the commission in Nova Scotia recognized and commented on.
I would ask that you consider that, because it is not like someone that goes out and works for a Crown agency or the private sector. Yes, they can be dismissed, normally for reason, and of course politicians are dismissed for reasons as well, but they are summarily dismissed and they are on a ballot when the election is called, and that is the difference.
There is another point I want to make. I know your colleague Kevin Lacey in Atlantic Canada, and he is a great guy. It seems that when we make amendments like this, and this is a good amendment and you have recognized that, it never seems to be enough. It always has to be more. I appreciate you are an advocate on behalf of your organization. In this instance, this is a milestone. This is a major step. I would ask that when you and Mr. Lacey speak outside, that you recognize that. I would also ask that you recognize the plight of the politician. It is not easy. There are not many analogous situations around that deal with this.
Mr. Chairman, those are my comments.
The Chair: Thank you. Those are very helpful comments.
Mr. Thomas, do you wish to reply?
Mr. Thomas: In the financial meltdown of 2008, 417,000 people lost their jobs. I worked at an investment house. I had worked there for close to 10 years. The firm decided to get rid of 30 per cent of their staff. I got two weeks' notice. That was a little tough. That was a little wrenching. I worked hard, long hours, more than 37 hours a week, weekends, mornings. Some of my clients had lost millions. It was not my fault. Through decisions they had made and advice I had given them in good faith, these people had seen their retirement savings cut by massive amounts of money in a very short period of time. That is a plight. These people did not have an indexed income for life to shield them from that.
I have a lot of sympathy. I have known a lot of elected officials, people of sterling character, immense determination — selfless, public, spirited individuals. Their service absolutely deserves to be recognized. However, there is this notion that people in public service develop that their walk is harder or their journey is different. It is a journey and it is a walk, and it comes with heartbreaking disappointments and sacrifices and setbacks, but you cannot set yourselves apart from everybody else.
The Chair: I thank you for your comments.
I have, on round two, only one name thus far, and we are running down on time. Senator Mitchell, if you could focus on the bill.
Senator Mitchell: I will. I will be quick.
I want to get back to your point about James Moore. He is a fine politician, a fine representative. You said that he has a $2.8 million —
Senator L. Smith: This is irrelevant.
The Chair: No, no, it is not. Let him ask his question.
Senator Mitchell: It gets to the point of valuing it. I ask that you would consider these figures. Again, as my colleague here has said, could you just consider some of these things that we are saying when you make your case?
James Moore, over 25 years, will accrue his own money under this new system at $42,000 a year, because his CPP will go into it, and will accrue upwards of $2.8 million at the 5.2 per cent. That is no government share. That is just what his will accrue to. He will be entitled to a $118,000 pension. At 5 per cent, that $2.8 million, without ever going into the capital, would pay $145,000, so he will actually —
Mr. Thomas: Under the new regime.
Senator Mitchell: Under the new regime. There will be no cost whatsoever to the government for James Moore. In fact, James Moore, at a basic 5 per cent, will leave the government $2.8 million — well, more than that. He will not even be getting out 5 per cent. He will leave the government about $3 million when he dies, although his wife may live on a little bit longer and get some of that. The point is that without even going into capital, he will get his pension at 5 per cent without any government share whatsoever. This is not going to be a burden on the taxpayer.
The whole question of pricing and valuing this is really worth looking at for you and your organization, and I ask you to do that and to be reasonable about it. You can talk about how Ontario has done just fine with the politicians. Maybe they have, but they have run consecutive deficits under Harris and under McGuinty. If you look at results under the federal government of the Liberals, they did not run deficits. If you look at results, you could start to make the case.
I want to endorse what my colleague has said about the pressures. You need to look to getting good people, and you need to sustain it. At some level, you will start to demonstrate that. That is my first question, and it is a question to ask you to look at the values and what it will really cost.
My second question, which is more of a question, is that you are asking compared to what. I am saying yes, we throw out this idea of comparison. Well, you could compare an MP to the lowest paid person. Maybe they should all get $10 an hour and no benefits. I see that as a $300 billion corporation. I see the stakes as hugely high in what we do with our economy and how we relate to the Chinese and whether we sell Nexen, what we do with the environment, huge questions that will affect your kids and your sister who works for whatever. At what level they should be compared?
You can say that CIBC VPs no longer get a pension. They get all kinds of other compensation, believe me. I believe a CIBC VP is who these MPs should be compared to because the stakes, the quality of decisions and the complexity of what they deal with is every bit as significant as that. Admittedly, it is public funds. He or she is probably making well in excess of $1 million a year, getting huge stock options, huge stock payments and huge retention payments. There is no comparison between the 157 that they make and now the take-home pay that will be $5,800 a month. It is a question of who you compare it to, is all I am saying.
Mr. Thomas: I believe the consecutive deficits in Ontario in the early 2000s were the Ernie Eves' administration.
Senator Mitchell: No, it was Harris. It does not matter.
The Chair: We are dealing with a piece of legislation. Is there anything you can comment on as your final comments with respect to this legislation that we have to look at? We are not awfully versed in looking at this type of legislation. We hear your comments, both pro and con, but if there is anything specific in this legislation that you think should be there or should be changed, now is the time, or in the next day or so. If you wanted to send us a letter on specifics, we would certainly be appreciative of that as well.
Mr. Thomas: All right.
The Chair: Thank you.
Honourable senators, thank you very much. I think this was helpful, and we have thanked the — I am sorry, Senator Marshall?
Senator Marshall: What is our plan here now today?
The Chair: First, my plan was to thank the Canadian Taxpayers Federation for being here on very short notice.
We have confirmation of two witnesses for our Tuesday morning slot, one of them being the Chief Actuary. You have heard many people ask questions that would be better asked to the Chief Actuary. He has confirmed for Tuesday morning at 9:30.
We also have the Treasury Board coming back to help us with clause-by-clause consideration. They say they are the best rather than Justice to help us with clause-by-clause. My anticipation is that after a short break to allow honourable senators to gather their thoughts together, which is our usual process, we would do the clause-by-clause consideration on Tuesday and then report it back Tuesday afternoon.
Senator Marshall: Okay.
Senator L. Smith: Mr. Chair, I think the witness has finished. Is this internal business that we are doing right now?
The Chair: I have already thanked him. This meeting is now concluded. Thank you.
(The committee adjourned.)