moved that Bill C-85, an act to amend the Members of Parliament Retiring Allowances Act and to provide for the continuation of a certain provision, be read the second time and referred to a committee.
Madam Speaker, the pension plan for members of Parliament has been a matter of discussion and concern by members of Parliament and by the Canadian public for quite a number of years. In recent times we have received many petitions and letters on the subject. Indeed, the House addressed the issue previously with a full day of debate on November 22, 1994. Members had the opportunity to discuss the various ins and outs of what needed to be done in terms of the MP pension plan.
Today, we begin second reading debate on Bill C-85, an act to amend the Members of Parliament Retiring Allowances Act.
This matter has been debated publicly for over a decade.
When the Liberal Party entered the 1993 election campaign it put forward a policy book of specific recommendations that a Liberal government would undertake in its mandate. The Canadian public then elected a majority of Liberal MPs to govern Canada. That same electorate expected this new Liberal government to follow through on the stated commitments as outlined during the election campaign and put into writing in the book "Creating Opportunity", which is frequently talked about today as the red book.
The red book preamble on this subject matter began with the words:
-the pension regime of members of Parliament has been the focus of considerable controversy. It is now the subject of an independent review which Liberals support. We believe that reform is necessary.
The independent review cited in the red book is the "Study of Parliamentarians' Compensation" carried out by the pension consulting firm of Sobeco. Ernst & Young. This report was delivered to the current government in March 1994 with specific recommendations on compensation issues for senators and MPs that went beyond just the pension plan.
In addition to talking about that report the red book went further. It said:
Whatever the results of the independent review, a Liberal government will reform the pension plan of members of Parliament to end "double dipping".
It was saying, in effect, that MPs should not be able to leave office and receive a pension from the federal government if they accept a new full time paying job from the federal government. It goes on to say: "In addition we will review the question of the minimum age at which pensions will begin to be paid".
The announcement of the government's intention to reform the pension plan, which I made previously in the House, and the legislation which is currently before us, Bill C-85, will implement the specific red book commitments made by the Liberal Party during the election campaign of 1993, and in fact goes further in this legislation.
Having given that background, I would like to take the House through a few chronological events which have happened since the election of October 5, 1993, leading up to the bill we are debating today.
The first notable event is the consultations and the eventual report prepared by Sobeco, Ernst and Young. The consultations which they carried out focused on four groups: present MPs, senators, newly retired or defeated MPs from the last House and longstanding retired parliamentarians. Focus groups were held and a great deal of information came to light on the particular role of parliamentarians and how the compensation issues addressed their roles.
I will not go on at length about the methodology or all of the specific findings of the report. I would urge members to read the report if they have not had the opportunity to do so already. It has been made available to all members of the House. However, I would like to acknowledge the members who participated in the consultative process. It is very important to have information about the impact of the compensation and the pension plan to help to determine what is the best course of action to take, in addition to those commitments which the government made during the election campaign.
There were not only government members and senators but also members of the opposition parties.
In March of last year I had the opportunity to table the report in Parliament. Each member of Parliament was provided with a copy. The focus of the report was to rearrange the compensation elements for senators and MPs to more adequately reflect their roles as legislators, public policy makers, public advocates and representatives of Canadians.
The Sobeco study came forward with concrete recommendations to decrease the amount paid out in pension to former parliamentarians who qualified for such a pension, but simultaneously it recommended an increase in the salary for members of Parliament; to go up on the salary and come down on the pension provisions.
Private sector, provincial legislature and international pension plans were used for comparative analyses. The consultants did not just consult with members, they looked at what was happening in other locations and in the private sector as well. The specific results of these comparisons are detailed extremely well in the study.
The report suggested tying changes in the salary component with pension plan changes. This recommendation, however, was received by the government just one month after the budget of February 1994. In that budget the government imposed a salary freeze on parliamentarians until 1997, in accordance with what we were already doing with respect to the public service. We have to get the deficit and the debt under control. We had to provide for that freeze because we could not afford to pay members of Parliament or members of the public service any more in compensation. It is in that light the report came forward. The government would not wait to change the pension plan for sunnier days. We cannot provide for an increase in wages at this time but we need to provide the changes we had promised in the pension plan.
The Sobeco Ernst & Young study had said that the compensation level should remain the same. In fact the overall compensation level when compared to the private sector was not near the top at all. If we cannot increase the salaries, which we cannot do, the question is how much do we go on the other side of the equation in terms of decreasing the pension plan? That has been one of the key considerations that we have had to take in this whole process.
As I said a moment ago, we cannot wait for the day when we can deal with salary increases as suggested. We cannot afford them at the moment. While the total compensation approach outlined in the study is worthy of further discussion, it is not functionally possible at this time. However the pension recommendations are being acted on, which is what Bill C-85 is all about.
The other ingredient in reporting on the question of compensation comes from the Lapointe commission, a parliamentary commission mandated by the Parliament of Canada Act to review the adequacy of compensation for senators and MPs. The commission was chaired by the Hon. Charles Lapointe, a respected former federal cabinet minister. The commissioners who sat with Mr. Lapointe included Jean Pigott, a former member of the House and Professor C.E.S. Franks from Queen's University, a noted academic expert on parliamentary affairs.
The Lapointe commission held hearings and I understand a number of members of the House testified before that commission. The commission reported in July 1994, and again all members received copies of the findings.
The particular recommendation of interest today that was brought forward by the commission, while not totally mirroring the Sobeco consulting report, nevertheless was quite similar. The total compensation approach was again suggested with an increase in salary and a decrease in pension benefits but overall keeping the compensation level the same.
Although I am summarizing the general scope of the consultation process and not going into the finer details of the recommendations put forward to the government, I would like to again thank the commissioners for their input to this important public debate.
The last event in this chronological review is the formulation of the government's recommendations that culminate in this amendment to the Members of Parliament Retiring Allowances Act.
On February 22 of this year I publicly announced the government's position and this has been further elaborated on in Bill C-85. The Members of Parliament Retiring Allowances Act was first introduced in 1952 to provide pension coverage for members of the House of Commons. Senators' benefits were added in 1965. While there have been several amendments since that
time, the most recent were in 1992 when the act was brought into compliance with the provisions of the Income Tax Act.
I move now to the question of minimum age. The legislation prior to Bill C-85 provides pension benefits for senators and MPs after serving six years in Parliament. A member can start drawing the pension immediately on leaving Parliament, regardless of age. This is the first amendment that I would like to address.
The Government of Canada will follow through on its red book commitment to review the minimum age at which members can receive a pension by establishing age 55 as the minimum for service earned under the newly amended act. This amendment is found in clause 11 of the bill. The public, the media and members of the House have sought a minimum age for receipt of a parliamentary pension that better reflects what is available in the private sector. Private sector and public service pensions vary in their minimum age requirements. Many include a combination of age and service provisions, while many more establish a stand alone age.
The government has put forward its amendment to establish age 55 based on a number of factors. The first is the adoption of the Lapointe commission report. That report also recommended age 55.
Second, the government has acknowledged the relatively short length of service for parliamentarians which primarily affected the decision to implement a stand alone age and not an age and service contribution. Most people who serve in this House do not serve long enough to collect a pension at all. Obviously the stand alone age made more sense in that regard.
Finally, the government has attempted to put forward a system that is transparent and fair establishing a clearly defined benchmark leaving no possibility of confusion from the very calculations inherent in age and service combinations. We are saying quite simply it is age 55.
The publicity that has been brought to the minimum age issue can perhaps best be characterized by a few celebrated cases of former members retiring or having been defeated from Parliament and receiving a pension when they were in their thirties or forties. While these ages are extremely early and do not provide retirement funds but an alternate source of income originally designed to assist in the transition of MPs from public life to the private sector, it is important to note that an overwhelming majority of parliamentary pensioners are presently over age 55, as high in fact as 87 per cent.
When we hear about MPs receiving pensions in their thirties and forties, it is really the exception and not the general rule. Nevertheless, it is an issue that this government said it would address and is addressing. Not all former senators and MPs leave Parliament with excessive pensions at young ages. Almost half, as I indicated before, do not even get a pension at all.
Let me address the matter of double dipping because the second amendment, the one which is found in clause 20, deals with the implementation of a restriction on double dipping for retired senators and MPs. The present pension plan does not provide a mechanism that reduces or eliminates salary or pension when a member receives income from two federal sources.
For the purpose of this debate it would be extremely useful to put forward a definition of double dipping. Bill C-85 provides a very necessary legal definition of course, but I would like to put forward my interpretation of double dipping as it relates to this Parliament.
Double dipping occurs when a former member of this House or the Senate of Canada is in receipt of a pension under this act and enters into employment, appointment or a personal service contract within the federal public sector earning remuneration from those activities in excess of $5,000 annually. With this definition I would hope that the jurisdictional lines as they relate to double dipping are clear.
With that said, I would put to the House that this government will put a stop to the practice that is unacceptable to many Canadians. The pensions of former MPs and senators who have left public office and secured paid employment within the federal government's jurisdiction will be reduced dollar for dollar. A $5,000 threshold will be established to avoid penalizing part time income earners.
The varied definitions of double dipping that have been put forward in public debate over the pension plan is staggering. Provincial legislators, public servants, military personnel and even private sector pensioners have been thrown into the mix at different times. Some of them sit on the benches of the third party so I think they would want to be a little quieter during this discussion.
That is not part of what this mandate was in terms of Bill C-85. Bill C-85 deals with the question of members of Parliament who go out from here and get another job in the federal public service. That is what we said in the election campaign we would end and that is what we are ending.
I would also like to highlight the leadership the Prime Minister has demonstrated in ensuring that governor in council appointments made prior to this legislation coming into force would be affected. The legislation on double dipping comes into effect when royal assent is given to this bill, hopefully sometime within the next few weeks or months. However, there have been numerous appointments that have been made going back to the beginning of this government when elected on October 25, 1993. In this case the Prime Minister has asked appointees who have served in Parliament, former MPs or senators, and are currently
receiving a pension to return those benefits to the crown or reduce their salaries by the amount of pension received.
There are a number of examples that have been raised in public debate. It is for resolving those instances of double dipping that I would like to commend and thank the Prime Minister. Even though this bill is not yet in effect, he has ensured that it is in effect in terms that nobody appointed to a position who collects from the federal purse in the term of this government also collects a pension. He has specifically ended that kind of double dipping, going back to the beginning of this term.
An example of the application of the proposed double dipping amendment would be that when a former MP in receipt of a parliamentary pension of for example, $40,000 and who is appointed to a government post which might have a salary of $75,000, the former MP would lose all entitlement to a pension while employed by the Government of Canada. A pension of $40,000 would be reduced dollar for dollar by the amount of the salary. In this case, using those numbers, it would leave a zero balance in terms of pension while that person was collecting elsewhere on the public payroll.
It is important to realize that a $1 per year adviser to the government should quite obviously not lose any pension benefits during service to the crown. That is the reason for this $5,000 threshold, to exclude those who are earning very nominal sums or very small part time remuneration.
Members of the House may not believe that legislation could be debated that prevents the $1 per year adviser from collecting a pension. Nobody would dispute that. However, I point out to all members that private members' Bill C-208 last spring would have done just that. In fact, there is a second private members' bill currently before the House that would have the same effect, preventing a $1 per year adviser to the government from collecting an earned pension, not just while employed but forever thereafter. I think we are dealing with it in a fair and reasonable manner.
A final point on the double dipping issue is that former MPs and senators who are currently appointed to a position in the federal public sector and are then reappointed after the day on which our bill receives royal assent will be subject to the double dipping provision. The Prime Minister has received from them compliance on a voluntary basis, but after royal assent if a reappointment comes up they would be subject to the provisions of the bill.
Let me deal with the question of savings. We are also cutting benefits that are available to retiring members. The red book speaks of double dipping and minimum age.
It is quite obvious in those letters and petitions from the Canadian public and pension plan members that they want more reform. The Liberal government acted on the need for reform and has now put forward additional amendments in Bill C-85 that will have the effect of going even further.
The costs of the pension plan have been significantly decreased, by 33 per cent. That is direct savings to the Canadian taxpayer of some $3.3 million from a $10 million pension contribution. These savings are generated in two ways.
First is the establishment of a minimum age which will result in fewer former members collecting a pension at an early age. The most important element in the savings equation is the 20 per cent reduction in the benefit MPs will earn on future service. This is the accrual rate reduction, as hon. members will know.
Speaking of the accrual rate, the current pension plan provides benefits for MPs based on the best six years of salary with a benefit rate or accrual rate of 5 per cent. That is 5 per cent of an MPs average sessional indemnity, as we call it, per year of service.
This accrual rate is to be reduced by Bill C-85. Clause 9 of the bill will reduce the present 5 per cent accrual rate to 4 per cent, a 20 per cent cut in benefits for MPs. It will be this 20 per cent cut that will provide the lion's share of the savings to the government and to Canadian taxpayers, which as I said a moment ago totals 33 per cent savings.
Senators' pensions will not be affected and will remain at current levels because senators receive 3 per cent. They are already at a lower level of their average sessional indemnity per year of service.
The accrual rate of 5 per cent for every year of service for MPs at present provides for a maximum contribution of 15 years. Not too many are here for 15 years, but if a member gets to 15 years, he or she can get to the 75 per cent pension level. If an MP serves for eight years in Parliament, his or her pension would be calculated as eight years times the 5 per cent accrual rate, equalling a pension of 40 per cent of salary.
The amendment act will continue to provide for a ceiling, which as I say not too many will achieve, of 75 per cent. A new member under these rules would need to contribute to the pension plan for 19 years in order to realize a similar benefit as that of the present plan.
Members may wish to note that the accrual rate reduction applies to future service only, that is, service after the date when the act receives royal assent. What members of the House or former members of the House have accrued up to the date of royal assent, and the rate at which they have accrued it, is an entitlement which they have and will continue to have. That is
the way pension plans operate throughout the country. It is part of the normal pension regime.
Let me deal with the question of tax treatment. Tax treatment of the overall pension plan is an integral element of the funding mix and thus is a significant contribution to the actual cost of the plan. The Income Tax Act prescribes a tax benefit for registered plans which does not exceed a 2 per cent accrual rate. This would be the amount which opposition members speak of when they talk of the legal limits of the pension plan. However, I would like to clarify for the House at this point that the Members of Parliament Retiring Allowances Act complies with the Income Tax Act. I particularly want the members of the third party to note that. That is a fact which some members have disputed and even raised in members statements or in question period.
The act was amended in 1992 when the government of the day brought the plan into compliance with the Income Tax Act and provided that all benefits would be fully funded. It did so by dividing the plan into two parts: a registered pension plan containing those provisions which fall within the limits allowed under a registered pension plan or a plan registered under the Income Tax Act; and a retirement compensation arrangement, an RCA, which contains those elements in excess of the Income Tax Act. That is a common element, a common vehicle, for dealing with pension plans in the private sector as well.
Part I of the act contains the registered pension plan portion and part II contains the retirement compensation arrangement. I would stress that both of these parts meet the requirements of the Income Tax Act. Amendments in this bill primarily affect parts I and II of the act.
Contributions to the pension plan are made by members currently at the rate of 11 per cent of his or her annual salary which is much more than is generally the case in the private sector. For senators it is 7 per cent of their annual salary.
The contribution rate will be reduced to 9 per cent to reflect the decrease in the accrual rate. This reduction is found in clause 7 of the bill. Senators contribute 7 per cent of their annual salary, receive a 3 per cent accrual rate, and that will not change. The 9 per cent contribution rate for MPs, however, is more in line with the new 4 per cent accrual rate.
The media and some members of the opposition asserted that this would increase compensation for parliamentarians.
In fact the total compensation for members will decrease with amendments to this act. The claim that members will receive a salary increase of 2 per cent is simply not true. MPs will have 2 per cent more disposable income but they will also have more that is subject to tax as a result of that. There is no increase in the compensation level. Again, the compensation level for MPs is going down.
As I mentioned earlier, the 1994 budget imposed a salary freeze on MPs, who incidentally have not had an increase for some six years. The pension benefits are being cut by 20 per cent. There is simply no way a salary increase could be extrapolated from what is quite clearly a cut in compensation to MPs.
I should like to deal with a matter that I know is of particular interest to some of my colleagues beyond here. That is optional participation. The member for Beaver River will be extremely interested.