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Proceedings of the Standing Senate Committee on
National Finance

Issue 27 - Evidence - October 30, 2012

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OTTAWA, Tuesday, October 30, 2012

The Standing Senate Committee on National Finance, to which was referred Bill C-46, An Act to amend the Members of Parliament Retiring Allowances Act, met this day at 9:36 a.m. to give clause-by-clause consideration to the bill.

Senator Joseph A. Day (Chair) in the chair.

[English]

The Chair: I call this meeting of the Standing Senate Committee on National Finance to order. My apologies for starting a wee bit late. I was reading my bill one more time in the hopes that I would understand it.

[Translation]

Honourable senators, this morning we will continue our study of Bill C-46, An Act to amend the Members of Parliament Retiring Allowances Act.

[English]

This morning we welcome the Chief Actuary of Canada, Mr. Jean-Claude Ménard. Mr. Ménard, welcome. We also welcome back Treasury Board Secretariat personnel Kathleen Kelly, Executive Director; Joan Arnold, Senior Director; and Kim Gowing, Director; and, from the Department of Finance, we welcome Ian Pomroy, Senior Tax Policy Officer, Personal Income Tax Division.

We are dealing with Bill C-46, honourable senators, which is the pension for parliamentarians.

Mr. Ménard, you have a few opening remarks. You have the floor at this time.

[Translation]

Jean-Claude Ménard, Chief Actuary, Office of the Superintendent of Financial Institutions: Honourable members of the committee, thank you for the opportunity to appear before you today.

The primary role of the Office of the Chief Actuary is to provide actuarial services to the federal and provincial governments that are Canada Pension Plan stakeholders. While I report to the Superintendent of Financial Institutions, I am solely responsible for the content and actuarial opinions reflected in the reports prepared by my office.

The OCA conducts statutory actuarial valuations on the CPP, Old Age Security Program, and pension and benefits plans covering the federal Public Service, the Canadian Forces, the Royal Canadian Mounted Police, federally appointed judges, and Members of Parliament. Since 2001, we have also performed annual actuarial reviews of the Canada Student Loans Program.

In addition, whenever an amendment is made that has a significant impact on the financial status of a public pension plan falling under the statutory responsibilities of the Chief Actuary, the OCA must submit an actuarial report to the appropriate minister.

Changes to the pension plan for members of the House and Senate were recently introduced in Bill C-45, A second Act to implement certain provisions of the budget tabled in Parliament on March 29, 2012 and other measures, and more recently in Bill C-46, An Act to amend the Members of Parliament Retiring Allowances Act. The main changes put forth to members' retirement allowances, that is their pensions, are as follows.

[English]

The contribution rates paid by members will be increased to bring their share of their plan's current service cost from 14 per cent to 50 per cent, thereby splitting the cost 50-50 between the members and the government. With this equal cost sharing, members will contribute just over 20 per cent of their pensionable earnings by 2017 compared to the current rate of 7 per cent. In dollars, this represents an after-tax contribution increase for a member of the House of Commons from about $6,000 in 2012 to $21,000 by 2017. For a member of the Senate, the after-tax contribution increase would be from about $5,000 in 2012 to over $18,000 by 2017.

Regarding the second modification, the age at which plan members can retire with an unreduced pension will be raised from 55 to 65 effective January 1, 2016.

Third, retirement allowances will be permitted before age 65, subject to a reduction.

Fourth, benefits paid will be coordinated with those paid by the Canada or Quebec Pension Plans.

Fifth, the rate of interest that is credited to the pension accounts will be reduced from 10.4 per cent to the same interest rate as the funding valuation interest rate, which would allow the accounts to be more closely aligned with the actuarial liabilities of this pension plan.

Sixth, the expected total savings to the government are about $29 million by 2017-18.

Finally, the retirement allowance for the Prime Minister will be reduced from two thirds of his salary as a Prime Minister to 3 per cent per year of service as Prime Minister. Also, the age at which this is payable will increase from 65 to 67.

I want to point out that there is no unreduced pension, no payment that can be paid before the age of 67 for the Prime Minister.

Thank you very much for the opportunity to appear before this committee to discuss the amendments to the Members of Parliament Retiring Allowances Act. I will be pleased to answer any questions you might have.

The Chair: Mr. Ménard, thank you very much for your remarks. Just a point of clarification before we go on: In item 1, on the final page of your presentation, you say, "The contribution rates paid by members will be increased to bring their share of their plan's current service cost from 14 per cent to 50 per cent." The 50 per cent I understand. How does the 14 per cent compare to the 7 per cent? Is it not going from 7 per cent to 50 per cent?

Mr. Ménard: No, the 14 per cent is the proportion of the current service costs. Right now, the current service costs of the plan, as it stands, are 52 per cent of pensionable earnings. In other words, your plan cost for all the members — 300 in the House of Commons and 100 in the Senate — is about 52 per cent of the pensionable earnings. Right now, the 7 per cent represents 14 per cent of this cost. Going forward, the contribution rate will represent 50 per cent of the current service cost.

The Chair: Thank you. That clarifies that. I will now go to my list, and the first person on my list is Senator Marshall, who is the sponsor of the bill.

Senator Marshall: Thank you. My first question is who set the new rates. Would that have been done by your office?

Mr. Ménard: Do you mean the contribution rates?

Senator Marshall: Yes.

Mr. Ménard: Yes.

Senator Marshall: You set the new rates. Okay.

I want to talk about the minimum benefits and the minimum death benefits. I am looking at the actuarial report. One of the concerns I have heard expressed is whether members will live long enough to receive the benefits that they paid into the plan.

Could you talk about the minimum benefits? It is my understanding that if a member does not live long enough to collect what they paid in, their estate will get the funds back if they have no survivors. Could you explain that and the minimum death benefit where people have purchased prior service through the plan?

Mr. Ménard: Thank you for your question. About the specifics of the minimum death benefits, I would like to turn the question over to Ms. Arnold, if that is possible.

Joan Arnold, Senior Director, Treasury Board of Canada Secretariat: The minimum benefit is presently established or set out in section 61 of this statute of the Members of Parliament Retiring Allowances Act. The way in which it works is that, if a member or former member dies and there is no person to whom a survivor benefit is payable and if the total amount of contributions paid by the member exceeds the total of what they have already received, then that excess would be paid to their estate.

Senator Marshall: We are only talking about the principle portion, are we not? What will be paid to the estate? There will not be any interest on that, will there? The fund could have that money for 20 or 30 years.

Ms. Arnold: It appears as though this provision is not set up in the same way as return of contributions or withdrawal allowance are, which do have interest. These particular benefits are just the total amount of contributions that the member or former member has paid.

Senator Marshall: There would be no interest paid. What about the matching portion that the government pays? There would be no return of that to the estate, would there?

Ms. Arnold: No, there would not.

Senator Marshall: What happens in the case of a survivor if the survivor continues on and collects a portion of the pension? When the survivor passes away and all of the principal amount has not been paid out, does that go into the estate?

Ms. Arnold: Yes, it does, under the provisions of section 61.

Senator Marshall: Okay. Can you also talk about the minimum death benefit? When the survivor dies, if someone has purchased prior service, the impression left is that the contributions and interest are paid right away into the estate. Is that correct?

Ms. Arnold: I am not certain how elective service would be different.

Senator Marshall: I am reading from the actuarial report. It says that if a parliamentarian or pensioner dies leaving no eligible survivor or if the survivor dies, the amount by which the sum of the parliamentarian's contributions and interest paid on prior service contributions exceeds any annuity payments is payable to the parliamentarian —

It would be all the contributions that they made for current service plus the amount that they paid to purchase past service. When you purchase past service, you have to pay interest on that amount, and that is the interest that would also be payable.

Senator Marshall: There is no interest, per se, given for the fact that it has been sitting in the pension plan for 20 years?

Ms. Arnold: No, there is not in this particular instance where an individual dies and the benefits they have received do not exceed the amount that they have contributed.

Senator Marshall: Thank you.

The Chair: Thank you for helping to clarify that, Senator Marshall.

Senator Buth: Thank you for your comments. First, I want to clarify that this pension is not a fund that is managed separately like the Canada Pension Plan. Is that correct?

Mr. Ménard: Right.

Senator Buth: The contributions from MPs and senators go into general revenue, and the payments come out of general expenses when the member retires?

Mr. Ménard: Yes.

Senator Buth: The second point of clarification is that, in point 5, you indicate that this is not an interest rate that is applied to the plan but that this interest rate is just used to calculate the liabilities of the plan.

Mr. Ménard: Yes.

Senator Buth: How was the 50 per cent amount calculated?

Mr. Ménard: Very good question. I like that. When I said earlier that the current service cost is 52 per cent of the pensionable earnings, that is based on an interest rate of 5.2 per cent, not the 10.4 per cent credited in the accounts. Having used 10.4 per cent — and in previous reports you could see the result — the current service cost would have been 27 per cent, not 52 per cent.

There is another element of complexity, and it is the basic plan versus the retirement compensation arrangement. For every pension benefit provided over the tax limits, the interest rate to calculate the value of these benefits is half of the 5.2 per cent. We are using a 2.6 per cent nominal rate, with an inflation of 2.4 per cent in this report, so it is a very low interest rate to use to finance the RCA component. That is the reason why every benefit that is provided over the tax limit is very costly.

Senator Buth: What are the tax limits?

Ian Pomroy, Senior Tax Policy Officer, Personal Income Tax Division, Department of Finance Canada: Under the tax rules, a defined benefit registered pension plan could provide yearly service benefit of 2 per cent of earnings, up to a specified dollar amount. For 2012 I believe it is $2,647. Benefits in excess of that must be provided through a retirement compensation arrangement. The reason is that tax deferral is provided on savings in a registered pension plan, so benefits above those limits need to be funded on a non-tax-assisted basis.

Senator Buth: Am I correct in assuming that 2 per cent of earnings is what goes into our pension plan and then the RCA, which is a separate contribution that we make, is 18 per cent because we are going up to 20 per cent of our pensionable earnings?

Mr. Ménard: Are you asking about the difference going forward between the costs of each plan?

Senator Buth: Yes. Thank you for clarifying the question.

Mr. Ménard: It is just that I do not have this number right, and if I give a number, it should be right. I have to go back to the report. As you can imagine, for those who have read the report, there are a lot of numbers in this report.

In the current plan, when we look at the 52 per cent, the 52 per cent is divided: 16 per cent in the basic plan and 36 per cent in the RCA, overall for the whole plan.

Senator Buth: In determining the contribution, did you take into account, then, the differences between the years of service that would be different between MPs and senators?

Mr. Ménard: This is again an excellent question. Let me say that when we calculated the 52 per, it is based on averages. On average, members enter the plan at age 50, they leave the plan at age 60 and, on average, and they die at age 90. This 52 per cent means that people will contribute for about 10 years, on average, and will receive their benefit for 30 years.

Senator Buth: On average?

Mr. Ménard: Yes.

The Chair: That is the House of Commons?

Senator Buth: No, that is everyone.

Mr. Ménard: That is everyone. If you look at the specifics for senators, the age of entry is, on average, 60. The age of termination is 75. We have analyzed data for the past 50 years. Senators will likely die at about the same age as members of the House of Commons, at age 90. There is an average of 15 years of contributions, compared to 15 years of benefits received.

Senator Buth: Thank you.

I was going to say that there is more hope for Senator Mitchell getting past 79.

The Chair: He was having us all die at 79 the other day. In fact, it might be opportune for us to call on Senator Mitchell now.

Senator Mitchell: Thank you very much. I really appreciate having the chance to talk to you. I was in contact with Mr. Clement's office trying to get information from the Treasury Board and they said, "Please don't call anymore" and that you were not available to meet.

There is no doubt that these pensions are too rich and we need to do something. To pay in half seems reasonable, but it is a question of half of what? I would like to get it priced. I know it is very complicated. I am approaching it from what I can derive from your report. I am not an actuary. I have done four calculations and all of them would indicate that $80,000 a year for an MP is probably over-valued. I will just stick to the MP figures, but it would be similar for a senator.

If a pension fund does what a pension fund should do, the MP puts money in, the government should put money into the pool and it should accrue to a level. When they retire and are able to take their pension, maybe there is a gap between those two things so it continues to accrue, then a life annuity is bought and it pays out until they die.

I calculated some figures. I took an MP who starts at age 40 and stays in until 65. I assumed your rate at 5.2 per cent. I did not factor in as much the reduced percentage on the RCA, but that is a refundable tax so that tax comes back and I see that entry. These figures may vary a little in that regard. They pay for 25 years. They pay $80,000 — $79,898 actually — for 25 years at 5.2 per cent. That is government and MPs together and not 50-50, actually. The MP is paying more than 50 per cent. The MP is actually paying 52 per cent or 53 per cent because the CPP is in there now. That is a small point.

That would accrue to $4.1 million. Assuming that that retiree then immediately starts, which they would as an MP, and lives to 90, which you are suggesting the average do, you could buy a life annuity at 5.2 per cent for $1.9 million that would pay until they were 90. These are all complicated, but I accept yours because you are an actuary. That would leave $3.2 million on the table. It would not even take the money that the MP member has paid in and accrued. It would take no government money at all. In that case, the member would actually be paying 100 per cent and then leaving some.

I could go on with other examples. When you are in for a shorter period of time, of course it does not accrue quite as dramatically, but 45 to 55, and you said the average is about 10 years. That is about a $48,000 pension, except if you take it to 55 it is now discounted to $42,000. Then the accrual in that case would be just over $1 million. If you lived to 85 and paid $42,000 per year based on that, you could buy an annuity for $648,000. Therefore you would be leaving $350,000 or $400,000 on the table and you would have only used about 20 per cent of the government's share. That is one way in which I find intuitively it is over-valued.

You will say, "Well, wait a minute, we have all this actuarial stuff." Well, let us go to your actuarial figures. They say there is a pool — only notational, which is another problem — of $992 million, almost $1 billion. However, it has a $175-million excess. Even your actuarial figures have a 21 per cent extra price. It is over-valued by 21 per cent. All you need to generate it is $817 million to cover the expenditures of the pension fund now.

That raises another issue, which says if that $992 million was actually in a fund being managed and paying 5.2 per cent it would generate, give or take, $50 million a year. All you need to pay out the pensioners that you are covering with that fund is $32 million a year. You can say, "Well, yes, but it is indexed." Yes, but if inflation is going up, so are the returns going up. I do not believe it is going to be 5.2 per cent for the next 30 years, but even at 5.2 per cent it looks to me to be overpriced.

The Chair: Shall we let Mr. Ménard answer your question?

Senator Mitchell: Yes, I will let him jump in here, and then I have another couple of areas.

The Chair: He may forget the front part of your question.

Mr. Ménard: At the beginning I had only two comments; now I have four.

Let us start with the 25 years of service. Your example is possible, but I would like to remind honourable senators that, when I look at the data at the last valuation date, only nine MPs have more than 20 years of service, which means about 3 per cent of the workforce. It is a bit higher for senators. Approximately 15 per cent of senators have more than 20 years of service. To use an example of 25 years of service is possible but not necessarily representative of the situation of the plan. That is my first point.

My second point is about the RCA component, and forgive me for all the complexity embedded in that. If you are in the private sector and you want to finance your benefit over the tax limits, it will be called a kind of supplementary employee retirement plan — I forget the other name but it is something over the tax limits. Most of the time it is not registered, is paid on a pay-as-you-go basis, and is not financed. In the MP's, both the basic plan and the retirement compensation arrangement components are registered. Having the RCA component registered gives you the opportunity to deduct all your contributions to the plan. Even in the private sector, they cannot use a high interest rate even if it is funded privately.

Senator Mitchell: They can do that under personal pension plans, PPPs, which they use. Not only that but if it is all covered by tax, as in our case, why would you use the lower rate on it? If it is all tax deductible, why would you use the 2.8 per cent after-tax rate, which Mr. Pomroy referred to? It is all tax covered unless the earnings are not.

Mr. Pomroy: It is true that RCA contributions are deductible, but when those contributions go to the RCA, there is a 50 per cent refundable tax paid to the government. That reduces the amount of funds in the plan to earn income. That is why the cost is higher for the RCA component. It essentially puts those funds on a non-tax-assisted basis.

Senator Mitchell: Have you not reduced that rate more than 50 per cent from 5.2 per cent to 2.4 per cent, which is greater than a 50 per cent reduction?

Mr. Ménard: The reduction is from 5.2 per cent to 2.6 per cent, which is 50 per cent. It is also reflected this way in the public accounts.

Senator Mitchell: There is an entry in your report of tax being paid back, is there not? I see an entry where you actually get the tax paid back; but I am interrupting you. The refundable tax is paid back. For past contributions it is $187 million.

Mr. Pomroy: RCA refundable tax is refunded when the benefits are paid out. If you follow the math through, it essentially puts RCA funding on a non-tax-assisted basis, which is the purpose. It funds benefits that are over and above the registered pension plan tax deferral limit.

Mr. Ménard: My last point is about the age of 55, which you mentioned. When you look at the mortality rates used and the improvements going further and compare them, for example the mortality rates of the plan and the general population, you can see that the members are living much longer than the general population. Indeed, at least five groups in the population live longer than Canadians on average: members of the RCMP, who have a stringent health medical test at entry and 40 years later, so we could see the difference in their mortality rates; judges, probably because they are nominated late in life and need to at least have good health to sustain their functions; members of Parliament; Ontario teachers; and teachers from British Columbia. It is probably true for all teachers in Canada, but I do not have data for the other groups.

My point here is to say that the age of 85 is not what we use going forward. Once we factor in the survivor benefit, the age of 90 is the more appropriate figure to use.

[Translation]

Senator Bellemare: Good morning, Mr. Ménard. I think it is very important for us to pay our fair share, 50 per cent of the cost of our pension plan, but 50 per cent of what? The contribution rate, as provided for 2017, is high, nearly 23 per cent. I went and looked at the Report on the Administration of the Members of Parliament Retiring Allowances Act. In the tables presented to us, it obviously talks about an account and all that, but the money is deposited to the government's general account, and these are somewhat notional accounts. I looked at contributions paid in and pensions paid out, and I did some compliance calculations to try to understand it all. The figures showed that contributions, based on the way they will be determined in 2017, will pay for half of pensions paid out in 2017. Although there are some actuarial aspects, this is above all a pay-as-you-go plan, and, consequently, what I understand is that current senators and MPs will pay 50 per cent, not of the reduced pension plan that will be adopted, but 50 per cent of the cost of previous pension plans promised, with very high rates before 1995 and until today.

So I wondered whether it was really Parliament's intention to do that because we have always understood that we would pay 50 per cent of the cost of pension promises, not 50 per cent of the cost of promises made in previous years.

Is my understanding correct? If so, what would the contribution rate be if we paid 50 per cent of our pensions?

Mr. Ménard: Excellent question. Indeed, it is a question that I considered myself when we prepared this actuarial report. You are right: the contribution paid is roughly equal to benefits paid, and that is true of a mature plan, and this plan is mature. It is just coincidence that the two are equal.

When you look at the future and the recent past, it is virtually the same in that we are financing the pension promise in advance, compared with having a fully financed pay-as-you-go plan tomorrow morning. The 50 per cent of the cost, that is your pension, would be equal to 50 per cent of the benefits paid in the year.

Senator Bellemare: Let us assume that the inflation rate rises sharply, that life expectancy increases again for people who are currently retired, and that public service salaries and those of MPs and senators do not rise with the cost of living. Does that mean that the contribution rate will increase again beyond the 20 per cent or so? In other words, what is the risk that our current contribution rates will become very high percentages of salary?

Mr. Ménard: Once again, that is an excellent question. When you look at the part on sensitivity tests in the actuarial report, you see that, if you change the inflation assumption in relation to changes in the salary assumption, the impact is much greater on inflation. In other words, that reflects the fact that the member will contribute for approximately 10 years and will receive benefits for 30 years. I looked at the previous actuarial reports, and the cost cited in some reports for current services was as high as 60 per cent, and the interest rate was higher, but, at that point, the inflation assumption was also much higher.

So when you look at the cost of the plan, you have to look at interest rates, inflation and salary increases, and inflation can have a significant impact on the cost of the plan in future. If inflation rises, costs will increase.

Senator Bellemare: At the same time, can it be said, based on the coincidences in my calculations, that, if we calculated the contribution rates whereby MPs and senators paid half of what they were promised, the contribution rate would increase to 23 per cent and to 46 per cent for the government? Would it be the same contribution rate?

Mr. Ménard: Yes, roughly. It is not calculated to a single decimal place, but you would get roughly the same result.

Senator De Bané: Mr. Ménard, you say you submit a report to the Minister of Finance on all pension plans to which the government contributes.

Mr. Ménard: Not quite. My opening remarks were probably not clear enough. I said the report is submitted to the appropriate minister, depending on the act or program concerned. For example, the actuarial report on the Canada Pension Plan is submitted to the Minister of Finance. However, the report on the Old Age Security Pension is sent to the Minister of Human Resources and Skills Development, and, lastly, in this case, it is forwarded to the President of the Treasury Board. Consequently, the minister who receives the actuarial report differs depending on the program.

Senator De Bané: Are those reports to the various ministers eventually tabled in Parliament?

Mr. Ménard: They are all tabled in Parliament.

Senator De Bané: I have another question. Parliamentarians who have contributed to the Canada or Quebec pension plans for the maximum number of years, that is since those programs started in 1966, receive these payments every month and their salaries are not reduced. Do you agree with that?

Mr. Ménard: Yes.

Senator De Bané: Then by what logic are parliamentarians who are eligible for the Canada or Quebec pension plan being told: when you reach retirement age, at that point, what you have contributed, what belongs to you, your Canada or Quebec pension plan, will be have to be deducted from your parliamentary pension? Would you tell me the logic in that?

Mr. Ménard: Of course, senator. The vast majority, if not virtually all, defined benefit pension plans in Canada are integrated into or coordinated with the Quebec Pension Plan or the Canada Pension Plan. Under the Public Service Pension Plan, for example, the pension promise is 2 per cent per year of service, including Canada Pension Plan benefits. Consequently, what the Public Service Pension Plan gives you is a replacement of 1.4 per cent up to approximately $50,000 of salary and 2 per cent above $50,000. And the difference between 1.4 per cent and 2 per cent is 0.6 per cent, which is equal to what you will receive from the Quebec Pension Plan or the Canada Pension Plan.

There is the same type of integration under your plan, which is being proposed under Bill C-46, but the pension promise in that case is 3 per cent. Consequently, that 3 per cent accumulation will be reduced for up to $50,000 in salary to reflect the fact that you accumulate pension rights under the Quebec Pension Plan or the Canada Pension Plan on that portion of earnings, and the 3 per cent applies in full to any portion of earnings over $50,000. That is the situation regarding benefits.

As for contributions, your contribution will be smaller for the first $50,000 and larger for salary above $50,000, $50,100 being the maximum level of earnings eligible for the Quebec Pension Plan or the Canada Pension Plan for 2012.

Senator De Bané: You said that all pensions come out of the government's budget, or at least the public sector budget, but you did not mention the various Crown corporations. Are they also valued by the Chief Actuary, or does that not concern you?

Mr. Ménard: That does not concern us.

Senator De Bané: I see. What troubles me personally are the consequences of the current legislation. Personally, I will be retiring from the Senate in the next 12 months and will therefore not be affected by these changes, which will come into force in 2016 or 2017, but for those who are here today, and who will be here after 2016 or 2017, putting them on the same footing, with the same contributions, as public servants who work 37.5 hours a week and who are protected by collective agreements, and asking that of parliamentarians who work 100 hours a week, there is something that bothers me for the next people entering Parliament.

There is no comparison with parliamentarians who are here for an indeterminate period of time. For many years, I have seen turnover of more than 30 per cent every four years among parliamentarians in the House of Commons. I have seen the trouble they have getting resettled later on. We come from a system that was far too generous 40 years ago, and today we are saying, "You are like public servants, who are unionized and work 37.5 hours a week." To my mind, that defies understanding. There is an ideology behind this that does not reflect basic common sense.

Mr. Ménard: I have a very brief comment on that. Unfortunately, I am not a compensation specialist, and it is very hard for me to say what is fair compensation and what are fair working conditions for anyone in society. My role, when I am given the provisions of a plan, is to value that plan based on the rules, to work very hard and to set the most reasonable actuarial assumptions, but I cannot really venture an opinion on the resulting workload or working conditions.

[English]

Senator De Bané: For me the challenge is to attract the best and the brightest as members of Parliament. I am very much concerned about this system as it goes to the opposite extreme of what we had 40 years ago, which was totally unreasonable. I am concerned that Parliament will not attract the best and the brightest, as it should.

The Chair: Ms. Kelly, did you wish to comment on this? I would like to give you the opportunity. It sounds very much like argument on policy, but you have the opportunity.

Kathleen Kelly, Executive Director, Treasury Board of Canada Secretariat: I would agree that it really is a policy question and a total compensation question. It is not our areas of expertise.

Senator Finley: First, my admiration for the mental acuity and agility of Senators Mitchell and Bellemare. I certainly could not have — I am just a country boy. What can I say? I have a unique situation. A pension plan for me is like buying oats for a dead horse.

I would like to go at the details of the plan. You mentioned a variety of other units that you perform actuarial services and audits for, including RCMP, judges and so on. Are they all part and parcel of the same plan, or is this federal parliamentarian plan a totally stand-alone plan?

Mr. Ménard: All members of the house and the members of the Senate are covered by the same pension plan.

Senator Finley: Are the RCMP and judges part of this plan, too?

Mr. Ménard: The judges have their own pension plan. The RCMP have their own pension plan.

Senator Finley: Right now there are roughly 400 people contributing to this plan. Am I right?

Mr. Ménard: Yes.

Senator Finley: Would a plan such as this be considered, in actuarial terms, a boutique plan?

Mr. Ménard: It is a small plan, if that is what you mean by boutique.

Senator Finley: I look at boutique plans as very special plans that allow certain options, for example, that might not be available to other plans. In this plan there are two options that are clearly missing, in my view. One is the option to opt out, and the second is perhaps to engineer, within the various categories of payment and benefit, something that is more suitable to the individual member. For example, we have some MPs who are in their mid to late 20s, with no family. We have middle aged MPs and old, retiring senators. We have a whole squad of people here and I am not sure that one size necessarily fits all.

I am not arguing the fact that the pension plan must be remedied in terms of what we pay and everything else, but I am somewhat disenchanted by the fact that there is so little option here. It is a bam, you have got it. That is it; take it or leave it. What would be your comments on the boutiqueness, the size? What would be the impact of people opting out? How much would it cost to give us more choice?

Mr. Ménard: That is a very good question and I think you made valid points. Opting out is not an option right now. My role, again, is to value the plan provisions. If Parliament wants to change the provisions of this plan, then I will do the necessary valuation. I think you explained very well that using an average does not pick all the elements of specific members.

I would like to give an example in comparing myself to my son. He is working at Statistics Canada. He is 29 years old and I am 56. If I look at the current service costs or the contributions paid, it is the same for all members. Obviously, on his head it costs less and on my head it costs more. The demography of the plan will always lead to a difference between classes of participants.

Senator Finley: However, in this case surely we must have very clear groupings of people. I am not saying that all should be able to opt out, but I think there should be an option for someone to do so if they want. You have very clear classifications. I am not saying should or should not. I am trying to get an impact. For example, let us say that 10 per cent of the members across that broad range decided to opt out. What would be the effect on the overall plan?

Mr. Ménard: Today it is very difficult for me to tell you what the impact of this would be.

Senator Finley: Were you ever asked to do actuarial numbers or scenarios?

Mr. Ménard: We were never asked to do these scenarios.

Senator Finley: Were you asked to do scenarios of options that might apply of 1 per cent, 2 per cent, 3 per cent, or perhaps whatever other categories these fall into? I am not arguing with my government and what they want to do, but I am interested in the process that was gone through. Were you asked to price out choices?

Mr. Ménard: One thing that is clear, as I mentioned earlier, is the 52 per cent of service cost is composed of 16 per cent for the basic plan and 36 per cent for every benefit that is financed over the tax limits. Obviously, if the benefits are changed, it will change this costing. However, my role is not to even look at the options; it is to cost the options that are decided by Parliament.

Senator Finley: Surely in order to determine option A, B or C or any combination of them, they would have to cost those out by going to you, would they not? You are the only person who can do that.

Mr. Ménard: Thank you. It is a big responsibility.

Senator Finley: That is what I am hearing.

Mr. Ménard: Again, if it is the wish of Parliament to change the plan going forward, we will be pleased to do the work.

Senator Finley: I can say with reasonable assuredness that you were not asked to cost out options or dropouts.

Mr. Ménard: We were not asked, no.

The Chair: Flowing from that, Mr. Ménard, I would ask you to look at Bill C-46, clause 3, which adds a new section to the legislation, proposed section 2.7. The proposed section says:

(1) The Chief Actuary shall fix contribution rates for the purpose of the provisions of this Act that require contributions to be made at the applicable contribution rate.

(2) In fixing contribution rates for the purpose of any provision of this Act, the Chief Actuary may fix a rate for all of the members of the Senate or House of Commons or for any class of members specified by the Chief Actuary.

One class could be senators. What would the criterion be for you to specify that you are setting a rate under this section for senators only, which would be different from the members of the House of Commons?

Mr. Ménard: This provision, although not written like that, exists right now. In other words, when I talk about the 52 per cent and your contribution rate of 7 per cent, not all members are contributing 7 per cent. If you have accrued the maximum pension and are not accruing any more pension rights, then the contribution rate is different.

These provisions are for if the plan provision is different for a specific member. The Chief Actuary could then calculate another contribution rate that would be more appropriate for the situation based on plan provisions, not on demography.

The Chair: Did you tell me what criterion you would be following then?

Mr. Ménard: The simplest one is to say that if you have more than 25 years of service. It is possible, but not frequent. Then when a member has accrued the maximum pension rights and you are not accruing any more, then the contribution rate is not 7 per cent. I think it is 1 per cent, taking into account the inflation component of the plan.

The Chair: Yes. I understand that, as well.

Senator Callbeck: Thank you all for coming today to help us answer our questions.

I agree that changes should be made to the pension plan. However, I have two or three questions regarding members of Parliament and senators. You read in the newspaper that the contribution right now between the taxpayer and the member of Parliament is 7 to 1, or 8 to 1 sometimes. Is that right?

Mr. Ménard: It is 6 to 1; 6 and some decimals after that.

Senator Callbeck: Do you have a breakdown as to what that is for senators and what it is for MPs?

Mr. Ménard: I think it is in the report. I could come back and give you the number, but it is probably more efficient to do so here.

Based on this report, it is $1 for $6.35 for the group —

Senator Callbeck: Right, but I am interested in the breakdown.

Mr. Ménard: — and for senators, it is $1 compared to $4.44.

Senator Callbeck: It is $4.44 compared to 6.1?

Mr. Ménard: Yes. That number is available in this report.

Senator Callbeck: What is the average age that a senator takes a pension and the average age that an MP takes a pension?

Mr. Ménard: The average age for MPs is around 60. For a member of the Senate, it has been 70 — even 65, or in the sixties — but now it is more at 75.

Senator Callbeck: Are you saying a senator takes it at 75 and an MP at 60?

Mr. Ménard: Yes, on average.

Senator Callbeck: So that is the average length of time that the senator gets a pension compared to the average length of time that an MP takes the pension.

Mr. Ménard: Sorry?

Senator Callbeck: The average length of time that the senator gets the pension —

Mr. Ménard: As I said earlier, a member of Parliament will receive a pension for about 30 years and a member of the Senate will do so for about 15 years.

Senator Callbeck: It is half. Have you ever looked at or considered having separate plans for the senators as compared to members of Parliament?

Mr. Ménard: We were not asked for that proposal.

Senator Callbeck: It seems to me there are big differences here. I understand that the deputy ministers have a pension plan; is that correct?

Mr. Ménard: I think they do.

Senator Callbeck: How many deputy ministers would there be?

Mr. Ménard: Oh, I do not know.

Senator Ringuette: There are 60-some.

Senator Callbeck: It seems strange that the deputy ministers have their own pension plans, and there are fewer than 100 of them, but this has never been considered for the Senate. There are tremendous differences here between senators and MPs.

Mr. Ménard: Again, this information is in the actuarial report. We have to do financial statements for both the Senate and the House of Commons; we have to calculate this information. This information is in the actuarial report.

I want to stress that the principle here is same plan provisions, so same contribution rate. That is the principle behind this. It is a different demographic, yes — a different experience of the plan.

Senator Callbeck: That is fine. Obviously, no thought has been given to this, and I just find it very strange.

[Translation]

Senator L. Smith: My question will probably be of interest to most senators and members of Parliament. Can you explain how the increase in contributions will actually affect net salary? You have set forth both amounts, especially for younger members of Parliament. If you are 38 or 40 years old and you have a family, how will that affect you?

[English]

Second, for senators to understand the income they earn now and their take-home pay, there is a natural question. Presently, if I am in the private sector, I can deduct up to 22 per cent or 25 per cent of my salary to my RRSP.

How does it work now when you calculate all the deductions for senators' pay? Will the increase enable us to have less of a hit on take-home pay when you talk of an amount of something like a $30,000 contribution? I wonder if you can help explain that.

[Translation]

Mr. Ménard: First of all, I will give you a general answer, and then I will ask Mr. Pomroy to supplement my response.

In my opening remarks, I said that the annual after-tax contribution would increase from approximately $5,000 in 2012 to slightly more than $18,000. You can therefore see the impact on disposable income, and that is the result of the contribution, which will increase in gross terms from 7 per cent of your salary to approximately 22 per cent.

[English]

Senator L. Smith: If it is $1,250 per month to hit the $18,000, and you are getting $7,000 per month net now, that means you will get $6,200. It is an extra $800 a month hit, is that right? It is over and above the base. If you are contributing $400-plus a month and you add the $800, it is $1,250, which gives you $18,000 after tax. I want to ensure I understand this.

Mr. Ménard: I will let my colleague answer that question.

Mr. Pomroy: As Mr. Ménard indicated, the after-tax cost, taking into account the deductibility of the contribution, would increase from about $5,000 to $18,000. However, I guess you are asking what the net impact is, is that right?

Senator L. Smith: In private life, you are able to take X per cent of your salary for RRSP contributions. This to me is a pension, so it is equivalent to an RRSP because you cannot put that money into your RRSP. Do you get the maximum deductibility through this plan that you would get through an RRSP?

If you earn $130,000 a year, 25 per cent of that is roughly $30,000. My understanding is that, with $130,000 less the $30,000, your taxable income would be $100,000 and then you would have your take-home pay. That is a rough estimate.

I am wondering how this system takes into consideration RRSP rules that we would have on the private side. I ask so there is an understanding. Hopefully, you will have a service centre for each of the senators and members of Parliament so they can phone you up and see how each personal situation is effected to the T.

How are you working it?

Mr. Pomroy: I can give a background on the system of RPP and RRSP limits and their integration. Someone's RRSP limit is equal up to 18 per cent of their earnings, up to a dollar maximum; I believe it is $22,970 for 2012.

If you are a member of a pension plan, because the limits are integrated, your RRSP limit takes into account the savings you are doing through your pension plan. Therefore, there is a subtraction from your 18 per cent, or the $22,970, of the estimated amount that is going into a defined benefit plan on behalf of someone each year. Therefore, since this plan is essentially at the max, members of this plan do not have very much RRSP room at all because they are accruing the maximum benefit under the RPP. Their savings through the RPP essentially achieves the maximum of what is available through either an RRSP or an RPP.

Senator L. Smith: As the RRSP contribution limits increase, as there has been some discussion that it could go up in time to incent people to save more money, would that naturally be taken into consideration with the calculation?

Mr. Pomroy: Currently, there is an 18 per cent contribution limit, and, for defined pension benefit plans, there is a 2 per cent per year of service benefit limit. Both of those are subject to annual dollar limits, so the 18 per cent contribution for RRSPs is subject to a $22,970 dollar limit. The 2 per cent per year of service for defined benefit RPPs is subject to a $2,600 benefit limit.

The dollar limits are indexed to average wage growth, so the $22,970 for RRSPs and the $26,470 per year of service benefit for defined benefit RPPs, those limits are indexed to average wage growth.

Senator L. Smith: I just hope there would be a system set up so each individual has direct access to you folks so they can understand both from the pension and from their individual earnings position how this affects them. That would appear to be a question that most people are asking. Will there be that service for each individual?

Mr. Pomroy: All I can say is if individuals have questions about their RRSP contribution limit, they should be calling the Canada Revenue Agency and looking at their notice of assessment when they receive that, which would indicate their RRSP limit every year.

Senator L. Smith: It would be helpful from the value-added service concept that people with pensions — there are 400 of them — would have service provided by people within our own group to understand exactly the implications, as opposed to going to the Canada Revenue Agency, which sometimes does not respond as quickly.

The Chair: Senator Finley wanted to follow up on this point. Mr. Ménard or Mr. Pomroy, did you have anything further?

Mr. Pomroy: I cannot speak for information that would be provided on the changes to the plan. That would be for my colleagues to comment on.

Ms. Kelly: We would continue directing you to your pension administration centre through the Senate. We of course would be working with them in the background, but they would be your point of contact.

Senator Finley: My question just got answered. That is, there would be access through Senate services to deal with this on a specific senator-by-senator basis.

Ms. Kelly: I cannot speak for them, but that would be your point of contact for pension information.

The Chair: Thank you. Senator Chaput from Manitoba is next.

[Translation]

Senator Chaput: I would like to repeat a question that has previously been asked to ensure I have a clear understanding, and it concerns the calculation of retirement benefits to reflect benefits paid by the Canada Pension Plan.

Here is a specific example. A senator retires and receives his pension. Let us say, for example, that he receives a retirement benefit of $3,000 a month from the Senate and $700 from the CPP. Will the $3,000 figure be changed as a result of the $700 amount, and will the senator then receive only $2,300 in Senate retirement benefits?

Mr. Ménard: If he was a member of the Senate for 40 years, your answer is correct.

Senator Chaput: I am not talking about 40 years.

Mr. Ménard: That is because the calculated CPP amount of $700 is based on a career spread over 40 years. So we are talking about integration in this case. If you have contributed to various pension plans in the course of your career as a senator, and each is integrated with the Canada Pension Plan, there will be an appropriate reduction for each of those plans based on the number of years of service for which you have contributed to that plan.

Senator Chaput: All right, I will restate my question. The senator has contributed to CPP since his first day on the job. Consequently, that contribution would result in a specific amount; let us say a hypothetical amount totalling $600 a month from the Canada Pension Plan.

If I correctly understand Bill C-46, that $600 amount will be deducted, for that senator, from the Senate pension benefit?

Mr. Ménard: No, unfortunately, well, not unfortunately, but that is because I do not want to contradict the senator.

Senator Chaput: Look, I do not know; I am asking questions.

Mr. Ménard: I will explain it to you right away. If you have been a member of the Senate for 10 years, for example, since your $600 amount is divided by four, your $3,000 pension benefit will be reduced by approximately $150, not $600.

Senator Chaput: So it is reduced based on the number of years spent in the Senate?

Mr. Ménard: Exactly.

Senator Chaput: And not based on the number of years you have contributed to the plan.

Mr. Ménard: That is correct, starting in 2016.

Senator Chaput: Very well. I believe that, when you answered Senator De Bané, you mentioned that this was a model based on other pension plans. Is this done anywhere else?

Mr. Ménard: Yes. The vast majority of defined benefit plans in Canada are integrated with the Canada Pension Plan or the Quebec Pension Plan.

Senator Chaput: Thank you, Mr. Ménard.

Mr. Ménard: You are quite welcome.

[English]

The Chair: Senator Chaput's question begs a follow-up question, and that is what if, for the Canada Pension Plan or Quebec Pension Plan that you are receiving, you decide to divide that or share that with your partner or your spouse. What impact does that election have on the time that you might serve in Parliament and in the Senate?

Mr. Ménard: It has no impact. Let us take a couple where a person is receiving $600 for CPP, the other partner is receiving $400, and they have lived together all their lives. That is important for the calculation. Then if they split, they will both receive $500. The earnings are not split; it is the amount received.

Most of the time people do that for income tax purposes. You will then receive $500 because you have split, but you still have the same reduction of $150. In other words, the pension split has no impact on the integration.

The Chair: Thank you. Next is Senator Hervieux-Payette from Quebec.

[Translation]

Senator Hervieux-Payette: All right, we are on the verge of understanding something, but I would like one minor point clarified. With regard to the Quebec Pension Plan, that money is administered by the Caisse de dépôt, but has the Government of Quebec been consulted on the subject, as to whether the contribution will henceforth be reduced because this has been integrated with the federal plan? In this case, does some negotiation have to be conducted with the other level of government?

Mr. Ménard: I am not aware that there have been any negotiations. All I can say is that this has no impact on the Caisse de dépôt et placement or on the Quebec Pension Plan. All we are talking about here is the benefit received from the pension plan for parliamentarians. There is no impact on the books or anything else of the Caisse de dépôt et placement or the Quebec Pension Plan.

Senator Hervieux-Payette: We would normally be receiving two at the federal level. When you have a salary equivalent to that of a senator, there is one for which it is hardly even worth completing the forms in order to get it because it would be sent back to the government the next morning in any case. So as regards pension benefits, I filled out the old age pension form for Quebec, but not for Canada. I viewed the plans as being interconnected; if you take something away here, you add it there, or vice versa.

In any case, we would ultimately not be contributing or receiving less, except that, as my colleague said, we cannot opt out or have a tailor-made solution. If I want to contribute more to one place or another and get more, that is not possible. There is no flexibility in the system.

Mr. Ménard: Integration means taking into account the percentage represented by the Canada Pension Plan or Quebec Pension Plan benefit associated with your years of service as a member of Parliament. That reduces the benefits received because, instead of having 3 per cent per year of service based on up to $50,000 of salary, if the proposed coordination factor is 60 years, you will have an accumulation rate of 2.6 per cent. For salary greater than $50,000, you will receive 3 per cent per year of service. With those two components in your pension plan, as a parliamentarian, you will get 3 per cent per year of service.

Senator Hervieux-Payette: If I have contributed in the private sector over 30 years, those 30 years of contributions that have accumulated will not be affected?

Mr. Ménard: Not at all.

Senator Hervieux-Payette: Only your lifetime as a parliamentarian is considered.

Mr. Ménard: Absolutely. Your understanding is correct.

Senator Hervieux-Payette: My next question is this: where then do you get this 90-year figure? I have been in politics for more than 30 years. I do not know many people who have made it to 100. To arrive at an average age of 90, some people have to die at 60 or 70 and others at 100. Where did you get that figure? It does not seem to reflect reality at all.

Mr. Ménard: It is a major challenge to get to 100.

Senator Hervieux-Payette: Indeed.

Mr. Ménard: It is much easier to live to 90 now than it was in the past. I could give you some information on a study on mortality rates by cause of death conducted by the Conference Board of Canada comparing Canada to 17 other countries. In that study, a score was assigned based on whether a country was good, better or not as good as the others. For combating mortality caused by cardiovascular disease, we were given an A, which means that we are among the top countries. That is why men have been catching up to women at an accelerated rate in the past 10 years or so, since deaths related to cardiovascular disease have sharply declined.

As for cancer, we were assigned a C. That is no doubt due to diet and lack of exercise, among other things. However, it suggests that other countries are doing better. If that is the case, we can aspire to do as much, as a result of which the 90-year figure is becoming much easier to achieve.

Senator Hervieux-Payette: Where does your assumption come from?

Mr. Ménard: The actuarial report of the Canada Pension Plan shows life expectancy. It indicates that a 65-year-old Canadian man can currently hope to live to the age of 84, while a woman's life expectancy is 86. In 30 or 40 years, people that age will probably live 3 or 4 years longer.

When I say 90 years, I am also taking the value of the survivor benefit into account because, when a member dies, if he or she leaves a survivor, 60 per cent of the pension must still be paid.

There are approximately 250,000 individuals 90 years of age or more in Canada. In 20 years, we predict there will half a million. We see that mortality rates have declined significantly in the past 15 to 20 years. That has always been the trend, but it has recently accelerated.

Senator Hervieux-Payette: We generally talk about Canadians' life expectancy; we talk about Statistics Canada data, as you do. However, when you come up with this 90-year figure, no one knows where it comes from.

I do not blame you for being the prudent actuary that you are. I am simply saying that, if someone asks me tomorrow morning why we in the Senate live to be so old, I will be forced to refer them to your office. Between you and me, despite your explanation, 500,000 out of 34 million or 35 million people still does not represent the majority of people who will reach 90 years of age, and we are talking about an average.

I will consider that idea your hypothesis, and I will try to get to 100 in order to verify it.

[English]

The Chair: Honourable senators, we are running a little tight on time, but we are still okay. I would ask senators to try to keep your questions succinct and to the point. Mr. Ménard has been very helpful walking us through the various sections. I know Treasury Board is here to help get us ready for clause by clause, and rather than asking Treasury Board to go through each clause, which we will be doing as senators, I ask them to stay here and be available if we have a problem on any clause. Also, senators, before starting clause-by-clause consideration, if you have any specific clauses you do not understand or would like clarification on, the Treasury Board is here.

Let us finish up with Mr. Ménard first. Senator Ringuette?

Senator Ringuette: Thank you. I guess I want to follow up on Senator Finley's questioning with respect to what research had been done with regard to an opting out proposal or the Senate having its own plan, like the deputy ministers. I think ministers have their own separate plans as well.

Your assumption that we will all live until age 90 I think has been established to be somewhat questionable, but I am not an actuary. You make the assumption that we will live until age 90, but you say that MPs will retire at age 65, although the average was age 60. Therefore, they will be receiving 25 years' worth from the plan, from your calculation. When you look at senators, assuming that we all live until we are 90 and assuming that we will retire at 75, it means that we will receive 15 years of pension.

From my perspective as a senator, I find that this proposal is a kind of double-dipping from me through the fact that I will contribute on average 10 years longer to the plan than an MP and will receive 10 years less from the plan as compared to MPs. Just looking at 10 years more contribution to the plan, senators will have to put at least $180,000 more into the plan than an MP.

I have a question with regard to the different scenarios that should have been researched before any kind of legislation was drawn up. If you have all the numbers to argue that we would all die, on average, at age 90, the MPs will retire at age 65 and therefore receive 25 years in pension and senators work 10 years longer but receive 10 years less in pension, was there a thought into have a cap in the plan of 25 years' contribution for MPs and 15 years for senators? That is another option that should definitely have been researched.

That is not thinking outside the box from any private sector or, I assume, to the deputy ministers' plan, that there is a cap on contribution just like there is a cap on the earnings.

Mr. Ménard: Could I answer?

Senator Ringuette: Yes.

Mr. Ménard: First, I want to make a correction. The ministers are covered by the same plan. They do not have the same salary, but they are covered by the same plan. That is important to mention.

The only person who has another plan is the Prime Minister. You have seen that the benefits of this plan have been reduced from two thirds of his salary to 3 per cent per year of service. If he serves 11 years as a prime minister, for example, then his pension will move from two thirds to one third, and it will be paid at age 67.

When I look at the demography of the plan, members of the house contribute for 10 years and senators for 15 years, on average. As you said, assuming age of death at 90, you have the difference in the period of benefits received.

When you ask about proposals, again, we were given this bill a few weeks ago and we costed the bill according to the provisions in Bill C-46. We have not done the costing that you are alluding to. Of course, if it is the wish of the Parliament to do more work on that, we will.

Senator Ringuette: The bottom line, from my perspective — and you have confirmed this — is that, on average, an MP will be contributing for 10 years and will be entitled to 25 years of benefits. Senators contribute for 15 years. This is your cap scenario, for instance.

Then the bottom line of all of this is that senators will be the big losers and will be contributing to MPs' pension.

Mr. Ménard: Again, the principle is they have the same plan provisions, so therefore it is the same current service cost. If a senator —

Senator Ringuette: All numbers considered, you have said yourself that you consider that MPs only pay for 10 years yet are eligible for 25 years of pension under this plan. This is not the situation for senators.

I honestly think that there has not been a lot of mature reflection put into this. What can I say?

[Translation]

Senator Bellemare: Mr. Ménard, my question concerns the transition period. The bill provides for contribution rate increases of 1 per cent in January 2013, 1 per cent in January 2014 and 1 per cent in January 2015.

However, the contribution rate will rise by approximately 10 points in January 2016 and 12 points in January 2017. Those are more than proportionate increases.

Mr. Ménard: The increases are more significant in 2016 and 2017 than in 2013, 2014 and 2015.

Senator Bellemare: Transition periods are usually longer when changes are major. Do you feel that 2013 to 2017 is a reasonable transition period? In 2016 and 2017, the impact on parliamentarians' net salaries will be significant, and it may represent a pay cut in cases where salaries do not increase.

Would it not be preferable to consider a slightly longer transition period in order to avoid affecting net salaries? If we reach 50 per cent of the cost of pensions, what will that mean in terms of years for people who are paying a mortgage and tuition fees for their children?

Mr. Ménard: That transition period is consistent with the objective of achieving a 50-50 cost share in 2017.

Senator Bellemare: If my understanding is correct, public servants currently pay 35 per cent of the cost of their pension plan and the government pays 65 per cent?

Mr. Ménard: Yes.

Senator Bellemare: Public servants pay 35 per cent of the cost of their pension plan and parliamentarians pay 14 per cent. The gap that must be closed in order to achieve an equivalent sharing is thus smaller for public servants. The jump in contribution rates is greater.

Mr. Ménard: Your figures are correct.

Senator Bellemare: What contribution rates will public servants pay in 2017?

Mr. Ménard: There will be different contribution rates at the bottom and top of maximum insurable earnings scales. I will take an approximate figure because we will still have an opportunity to prepare actuarial reports between now and then.

However, let us suppose that the current service cost is 22 per cent for the public service; that means an 11 per cent contribution for members.

Senator Bellemare: Compared to a 22 per cent contribution from parliamentarians.

Mr. Ménard: The plan is different.

Senator Bellemare: But the federal public service plan has been slightly more capitalized since 2000. Is that not correct?

Mr. Ménard: Yes. All are funded.

Senator Bellemare: They are funded by means of a real fund based on the pay-as-you-go method.

[English]

Senator Mitchell: I would like to put a plug in for the spouse of a prime minister. My spouse, were I to predecease her, would get 60 per cent of the benefit, but the Prime Minister's spouse, on the Prime Minister's allowance, should he or she predecease his or her spouse, would only get 50 per cent. I do not think that is fair, and that should be adjusted. That is just a statement.

My question concerns the idea of the notational fund. It is not real. It seems to me that in your report, and in this whole configuration, that is the worst of both possible worlds. On the one hand, people, the public, think there is money there, and there is not. In fact, there is really an extra billion dollars of debt that this government owes, and it should be in the debt column.

On the other side, there are no earnings benefits to the subscribers of the pension and the pension recipients by virtue of the fact that that should be generating money, in some years would generate more than is necessary, and would actually reduce the cost.

If we are going to compare it to private sector pensions, they have to put up pools of money and we should be doing that. What do you think about that?

Second, when you evaluate the price, because there is no real money you cannot really consider buying a life annuity for the payout. However, buying a life annuity makes it cheaper because of the way life annuities work, over and above just taking interest off the top. Have you factored into your pricing that it would reduce the cost if you had a pool of funds on which you could earn money and buy life annuities?

Mr. Ménard: In the actuarial report, if the valuation interest rate is raised by 100 basis points, the current service cost goes from 52 per cent to 45 per cent. Compared to the private sector, the RCA component in most private sector pension plans is financed on a pay-as-you-go basis. It will not necessarily reduce a lot the costs associated with the RCA component.

Senator Mitchell: You said that if it goes up 1 per cent, then it reduces the cost. However, it does not reduce what we pay, so why does the subscriber not get some benefit? We will not go down from $34,500.

Mr. Ménard: If it reduces the cost, then "50 per cent of reduced costs" mean lower contributions.

Senator Mitchell: The way it reads here is the government gets the benefits of variation; we do not. The government would have to make a decision to reduce our cost. It will not happen automatically, although the government share will go down automatically. That is what it says in your report.

Mr. Ménard: Even if you are going with invested funds, the contribution will increase. The objective is to share the costs of the plan 50-50.

Senator Mitchell: Yes, but that has not been happening, actually, and it will not happen.

The Chair: That concludes our questioning. Does any senator have any questions of the entire panel with respect to any clause that you are about to deal with?

Senator Finley: One would assume that there will be the possibility of other pensions being affected as a consequence of this. In order to get the thing set, to get it rolling and get it through transition, how long would it be before, reasonably, Parliament could look or you could recalculate numbers and options and stuff? How long a period of time from now until then? Are we talking five years, a decade — I do not know, 15 or 20 years? I imagine you want to do it in January, for example, but if one were to go back to revisit this, how long a period of time are we looking at?

Mr. Ménard: I will speak about Bill C-46. We are expecting to send a special actuarial report to the President of the Treasury Board in the following months, once the amendment is made, once the bill is passed.

Senator Finley: That sets in motion a whole bunch of actions, right? That is, MPs and senators contributing more, changes to the whole actuarial model and everything. How long does that take to dig in, if you like? If a future Parliament or a future Senate committee, or whatever, wanted to look at this, what would be a reasonable time to allow this to settle in — five years, ten years — before we revisit or could reasonably revisit this?

Mr. Ménard: A special actuarial report will be sent to the President of Treasury Board, the Honourable Tony Clement, in the following months. Later on, there will be also another triennial report as of March 2013. This report will likely be available somewhere in 2014.

Senator Finley: I do not think we are —

Mr. Ménard: We are not on the same page?

Senator Finley: I do not think so. Let us say Parliament passed this bill this week and in January decided to change it again. Would that be feasible? Would that be considered to be too early because the first one had not taken impact? There has to be a period of time for the bill that we are discussing now to be passed, enacted, and then all of the mechanisms set up to make deductions and everything else. How long does that take? Is it a year, five years? I am asking for a very specific reason.

Mr. Ménard: It depends on the complexity of the measure. There is a workload on my team, and I will have to address this request and prioritize it compared to other work that we have to do.

Is it complex? Yes; it could take a year or more. If it is not so complex, it might be earlier than that. This is one of the most complicated plans in Canada, but that is the reality.

Senator Finley: Four hundred people?

Mr. Ménard: That is not the number of people.

Senator Finley: I know there are survivors and stuff, but basically we are talking about fewer than a thousand people. The parliamentary pension plan would be fewer than a thousand people.

Mr. Ménard: Yes.

Senator Finley: Sorry, chair.

The Chair: Senator Finley, it is helpful to have it reconfirmed that Mr. Ménard said this is one of the most complex pieces of legislation. Are you aware of any movement to make this more simple and straightforward?

Mr. Ménard: I am not aware of that.

The Chair: Ms. Arnold pointed out, on the last day in her testimony, a similar type of comment, namely that it is quite complex with two different parts to it, et cetera.

While we have the whole team here, are there any clauses of this legislation, Bill C-46, which you wish explained to you more thoroughly before we proceed to clause by clause?

Could you tell me if everything here in Bill C-46 is to deal with the integration of the Canada Pension Plan and the members' allowance plan?

Mr. Ménard: Yes. All the measures I described in the opening remarks are in this bill.

The Chair: Are you able to quickly point out to me which clause? I have been looking for it for some time — that is, the intricacies of how that is being handled. Ms. Arnold?

Ms. Arnold: Proposed section 17.1 is one of the new allowances that will apply in respect of an individual's service from January 1, 2016, forward.

The Chair: Is that section 17.1 of the existing act?

Ms. Arnold: Sorry. It is page 11, clause 16 of the bill.

The Chair: Yes. Sorry. I did not mean to interrupt; I wanted to make sure that we were all there.

Ms. Arnold: This one talks about how an allowance will be payable under Part I of the act, which is the registered plan; in respect of one's situation as a member from January 1, 2016, forward. You will see in the chapeau of subsection 2 of 17.1, which is at the top of page 12, the calculation set out for the integration with the CPP. It is a number of years of the service multiplied by 0.02, and then you subtract a percentage, which is fixed by my colleague the Chief Actuary, of the person's average maximum pensionable earnings, which of course are the average maximum pensionable earnings under the CPP. That is then multiplied by the number of years of pensionable service as a member. That is as uncomplicated as I can make it. It was a difficult provision to draft.

The Chair: I imagine it was.

Ms. Arnold: There is also another reference to the CPP reduction in Part II of the act, which is to pick up the benefit payable under the retirement compensation arrangement. That you would find, I think, on page 30. It is in clause 30, as it turns out, and it is about approximately halfway down the page. Again, it is the same concept as in Part I, except that it is different multiplication because the benefit earned here under Part II is a 1 per cent benefit on your earnings because that is the part that cannot be paid under the registered plan. This is the benefit payable under this part of the plan, and there is also a CPP reduction for that particular benefit as well.

Again, it is just on the MP pension — the CPP pension is not affected at all — and it is only in respect of the number of years that you are contributing as a member to the CPP and also as a member of this pension plan. It is only service from January 1, 2016, forward.

The Chair: Once the member reaches age 71, this stops because you do not contribute to CPP after age 71. Is that correct?

Ms. Arnold: Yes, that is correct.

The Chair: All of this integration stops as of age 71 for members who might still be serving at age 71 and beyond.

Ms. Arnold: Because they would no longer be contributing under CPP, that is right.

The Chair: Any questions on that? Anything else?

Thank you, Mr. Ménard. You have been very helpful, and we appreciate that you have been very forthright in helping to explain this. Mr. Pomroy, we did not ask too many questions of you, but it has been good that you are here. You are welcome to stay. We are about to go to clause-by-clause consideration. We would like Treasury Board to stay, if you could find a seat, just in case we need to call you back; rather than have you at the table, this would be an exercise that we will go through as honourable senators.

[Translation]

The Chair: I would like to welcome the members of the public with us in the room.

We are meeting today to continue consideration of Bill C-46, An Act to amend the Members of Parliament Retiring Allowances Act. We are now at the stage where the committee will go through the bill clause by clause.

Before we do this, I would like to remind senators of a number of points. I know that senators from both sides are very eager to ensure that, in this committee, we do the best we possibly can so that, when the Senate takes up this bill, it has before it the best possible product.

[English]

As chair, I will do my utmost to ensure that all senators wishing to speak have the opportunity to do so. However, this will depend upon our cooperation. I ask all of you to think of the other senators and to keep remarks to the point and as brief as possible should there be any discussion in relation to the various articles or sections that that we will be looking at.

Finally, I wish to remind honourable senators that if there is ever any uncertainty as to the result of a voice vote or a show of hands, the cleanest and clearest route is to request a roll call vote, which provides clear results. Senators are aware that any tied vote negatives the motion in question.

Are there any questions with respect to any of these rules, honourable senators? If not, I believe that we can proceed with Bill C-46.

Is it agreed that the committee proceed to clause-by-clause consideration of Bill C-46, An Act to amend the Members of Parliament Retiring Allowances Act?

Hon. Senators: Agreed.

The Chair: Agreed? Thank you. Shall the title stand postponed?

Hon. Senators: Agreed.

The Chair: Agreed.

[Translation]

Shall clause 1, which contains the short title, stand postponed?

Some Hon. Senators: Yes.

The Chair: Agreed.

[English]

The Chair: Shall clause 2 carry?

Hon. Senators: Agreed.

[Translation]

Shall clause 3 carry?

Some Hon. Senators: Agreed.

Some Hon. Senators: On division.

The Chair: Carried, on division.

Shall clause 4 carry?

Some Hon. Senators: Agreed.

Some Hon. Senators: On division.

The Chair: Carried, on division.

Shall clause 5 carry?

Some Hon. Senators: Agreed.

Some Hon. Senators: On division.

The Chair: Carried, on division.

[English]

Shall clause 6 carry?

Some Hon. Senators: Agreed.

Some Hon. Senators: On division.

The Chair: Carried, on division.

Shall clause 7 carry?

Some Hon. Senators: On division.

Some Hon. Senators: Agreed.

The Chair: Carried, on division.

[Translation]

The Chair: Shall clause 8 carry?

Some Hon. Senators: Yes.

Some Hon. Senators: No.

The Chair: Carried, on division.

Shall clause 9 carry?

Some Hon. Senators: Yes.

Some Hon. Senators: No.

The Chair: Agreed, on division.

[English]

The Chair: Shall clause 10 carry?

Some Hon. Senators: On division.

The Chair: Carried, on division. Shall clause 11 carry?

Some Hon. Senators: On division.

Some Hon. Senators: Agreed.

The Chair: Carried, on division. Shall clause 12 carry?

Some Hon. Senators: On division.

Some Hon. Senators: Agreed.

The Chair: Carried, on division.

[Translation]

Shall clause 13 carry?

Some Hon. Senators: Yes.

Some Hon. Senators: No.

The Chair: Carried, on division.

Shall clause 14 carry?

Some Hon. Senators: Yes.

Some Hon. Senators: No.

The Chair: Carried, on division.

Shall clause 15 carry?

Some Hon. Senators: Yes.

Some Hon. Senators: No.

The Chair: Carried, on division.

[English]

Shall clause 16 carry?

Some Hon. Senators: On division.

Some Hon. Senators: Agreed.

The Chair: Carried, on division. Shall clause 17 carry?

Some Hon. Senators: On division.

Some Hon. Senators: Agreed.

The Chair: Carried, on division.

[Translation]

Shall clause 18 carry?

Some Hon. Senators: Yes.

Some Hon. Senators: No.

The Chair: Carried, on division.

Shall clause 19 carry?

Some Hon. Senators: Yes.

Some Hon. Senators: No.

The Chair: Carried, on division.

Shall clause 20 carry?

Some Hon. Senators: Yes.

Some Hon. Senators: No.

The Chair: Carried, on division.

Shall clause 21 carry?

Some Hon. Senators: Yes.

Some Hon. Senators: No.

The Chair: Carried, on division.

[English]

Shall clause 22 carry?

Some Hon. Senators: On division.

Some Hon. Senators: Agreed.

The Chair: Carried, on division. Shall clause 23 carry?

Some Hon. Senators: On division.

Some Hon. Senators: Agreed.

The Chair: Carried, on division. Shall clause 24 carry?

Some Hon. Senators: On division.

Some Hon. Senators: Agreed.

The Chair: Carried, on division.

[Translation]

Shall clause 25 carry?

Some Hon. Senators: Yes.

Some Hon. Senators: No.

The Chair: Carried, on division.

Shall clause 26 carry?

Some Hon. Senators: Yes.

Some Hon. Senators: No.

The Chair: Carried, on division.

Shall clause 27 carry?

Some Hon. Senators: Yes.

Some Hon. Senators: No.

The Chair: Carried, on division.

Shall clause 28 carry?

Some Hon. Senators: Yes.

Some Hon. Senators: No.

The Chair: Carried, on division.

Shall clause 29 carry?

Some Hon. Senators: Yes.

Some Hon. Senators: No.

The Chair: Carried, on division.

Shall clause 30 carry?

Some Hon. Senators: Yes.

Some Hon. Senators: No.

The Chair: Carried, on division.

Shall clause 31 carry?

Some Hon. Senators: Yes.

Some Hon. Senators: No.

The Chair: Carried, on division.

[English]

Shall clause 32 carry?

Some Hon. Senators: On division.

Some Hon. Senators: Agreed.

The Chair: Carried, on division. Shall clause 33 carry?

Some Hon. Senators: On division.

Some Hon. Senators: Agreed.

The Chair: Carried, on division. Shall clause 34 carry?

Some Hon. Senators: On division.

Some Hon. Senators: Agreed.

The Chair: Carried, on division.

[Translation]

Shall clause 35 carry?

Some Hon. Senators: Yes.

Some Hon. Senators: No.

The Chair: Carried, on division.

Shall clause 36 carry?

Some Hon. Senators: Yes.

Some Hon. Senators: No.

The Chair: Carried, on division.

[English]

Shall clause 37 carry?

Some Hon. Senators: On division.

Some Hon. Senators: Agreed.

The Chair: Carried, on division. Shall clause 38 carry?

Some Hon. Senators: On division.

Some Hon. Senators: Agreed.

The Chair: Carried, on division.

[Translation]

Shall clause 39 carry?

Some Hon. Senators: Yes.

Some Hon. Senators: No.

The Chair: Carried, on division.

Shall clause 40 carry?

Some Hon. Senators: Yes.

Some Hon. Senators: No.

The Chair: Carried, on division.

[English]

Shall clause 41 carry?

Some Hon. Senators: On division.

Some Hon. Senators: Agreed.

The Chair: Carried, on division. Shall clause 42 carry?

Some Hon. Senators: On division.

Some Hon. Senators: Agreed.

The Chair: Carried, on division. Shall clause 1, which contains the short title, carry?

Some Hon. Senators: On division.

Some Hon. Senators: Agreed.

The Chair: Carried, on division.

[Translation]

Shall the title carry?

Some Hon. Senators: Yes.

Some Hon. Senators: No.

The Chair: Carried, on division.

[English]

Shall the bill carry, as a whole?

Some Hon. Senators: On division.

Some Hon. Senators: Agreed.

The Chair: Carried, on division.

Is it agreed, honourable senators, that I report the bill, unamended, to the Senate?

Some Hon. Senators: On division.

Some Hon. Senators: Agreed.

The Chair: I will report back at the earliest opportunity, which I expect will be this afternoon. Honourable senators, this has not been an easy one, and I thank you for your assistance. I would also like to thank Treasury Board, who stayed on to help us with respect to this matter.

(The committee adjourned.)

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