Mr. Speaker, I remind the House that every member has come here with honesty and integrity, working their buns off 24 hours a day in some instances for seven days a week. I do not think many came here looking for the pension. My only hope is that I live long enough to enjoy it after the gruelling work days we go through.
I am pleased to have the opportunity to contribute to the debate on Bill C-85. I would like to ask hon. members to think carefully about some of the issues underlying the design of the pension plan.
Over the last few years there has been a growing chorus of complaints from Canadians about the generosity of the pension plan. In general, the complaints focused on two features of the plan. The first was the immediate availability of regular monthly pension payments from the day of leaving Parliament for the rest of the individual's life. The second was the frequency with which former members were seen as being rewarded, not only with this lifetime benefit but with appointments to highly paid posts in public life.
The first criticism is certainly understandable. We all understand that the purpose of a pension plan is to provide income for individuals who have reached an age when ability and willingness to work have declined. At that stage of life it is reasonable to think that retirement from the workforce should be possible without catastrophic alterations in lifestyle expectations. That is why our system of taxation includes measures to encourage Canadians to save toward retirement years during their employment years and encourages employers to participate in the goal by providing employer sponsored pension plans.
While undoubtedly improvements could be made, I cannot imagine that anyone seriously questions the importance of maintaining a system of tax assistance for retirement savings. Obviously the question of when it is reasonable to begin receiving what is meant to be retirement income is a different matter.
We should really ask ourselves if we have in place adequate financial arrangements to allow a member of Parliament, who leaves the House before what could be considered normal retirement, to make the transition back to private life in a reasonable way.
The answer to that question, however, is not to begin paying a pension to someone who is only in his or her thirties or forties. Such a person will look for employment elsewhere and most likely will continue to accumulate retirement savings so that ultimately on retirement pension may come from several sources.
The establishment of a minimum pensionable age for the Members of Parliament Retiring Allowances Act as proposed in the bill ensures that the pension plan takes its place as building a portion of ultimate retirement income for a person who may have several different types of employment during a full career.
As I have indicated, I fully support the action proposed in the bill with respect to the issue of what is commonly referred to as double dipping by former members who are receiving pensions and are appointed or become employed in federal jurisdictions.
To a great extent the problem has its genesis in the previous issue of the age at which pensions have become payable. The public is understandably concerned when a 40-year old is drawing both a generous pension and a salary from public funds. Obviously it would not be fair. Nor would it be in the public interest to preclude qualified former members from public service at the national level. However it is fair and respects the public view to act in the manner proposed in the bill to expect the former member to report such income and receive less or no pension for the period concerned.
The legislation responds to two specific criticisms of our pension arrangements. I commend the President of the Treasury Board for carrying through on our commitment in this area. I draw attention to the fact, however, that the president has gone even further and has made a very significant change in the formula used to calculate benefits under the plan. The change will affect all present and future members of the House by reducing the level of pension benefits earned.
Until this time members of the House of Commons have earned pensions at the rate of 5 per cent of average sessional indemnity for each year of pensionable service. For service after the bill takes effect the rate will be reduced to 4 per cent of average indemnity. This means that members will be earning 20 per cent less pension in future, which I am sure anyone would agree is a very significant reduction in retirement expectation for members of Parliament.
For example, based on current indemnity levels, a member will be accumulating $640 less pension for each year of service. We are told by the President of the Treasury Board that this reduction coupled with the introduction of a minimal pensionable age will amount to ongoing savings to taxpayers of something like 33 per cent of the present cost of the plan. This would mean that government contributions to the plan would be lower by more than $3 million every year.
Undoubtedly some will say this reduction is not enough, that the government has not gone far enough, that MPs are not worth what they are paid, that pensions are part of the compensation and so on, that the plan goes far beyond what is provided elsewhere, that the plan is illegal, and that no one else in the country would be permitted to have such a plan.
Clearly the question of how much is enough is one with no factual answer. Every Canadian will reach his or her own conclusion on whether or not the government has gone far enough.
A number of points should be considered by the thoughtful people of the House before coming to a conclusion. I should like to address the much publicized view that the plan is illegal in some way. Those who suggest that no other Canadian could have such a pension arrangement because of other legislation such as the Income Tax Act are either misrepresenting or misunderstanding the rules.
While the income tax rules for registered pension plans are complex, the general concept is simple. The rules put limits on the maximum benefits that can be accumulated under a pension plan and thus govern the amount of contributions that can be made and tax sheltered. The rules do not prevent individuals or employers from setting aside other funds to provide additional retirement savings. They simply do not provide tax assistance for such savings.
As well, where employers sponsor such additional arrangements and set aside funds to pay for them, I am told that special tax rules come into play that considerably increase the cost of providing the benefits by applying a refundable tax of 50 per cent of all revenues to the plan.
The Members of Parliament Retiring Allowances Act was amended in 1992 to conform with the rules we expect other employers to obey. Part I of the plan provides the benefits that are permitted under the tax rules, while part II provides the benefits that are offside of the rules. The benefits are provided on a funded basis, which means the contributions are made at a level that provides for the 50 per cent tax I mentioned.
While this is a complicated and technical area, it is important to understand the plan provides an arrangement that is not denied to any other Canadian by law. The reason it is done this way is to ensure we disclose to the public the full cost of providing the benefits on the basis available to any other employer. That is why the government is paying taxes to itself to ensure full disclosure.
Having ventured into the arcane and mysterious world of tax treatment of pension plans, I will with some trepidation presume to place on the record a few thoughts about the financing arrangements for MPs pensions.
We have heard many allegations about the total amount that members will receive in pension benefits over their lifetime. Often these comments are accompanied by the suggestion that there would be huge but unknown demands placed on future taxpayers to cover the cost of pensions. The suggestion is that we are hiding from the public the total obligations that are coming in the future. This is simply not true. It is not the case.
The Members of Parliament Retiring Allowances Act imposes the requirement that each year the government contributes the amount which together with members' contributions will pay the cost of benefits earned by all serving members in that year. This means that enough money must be put in the pension account and shown as a government expenditure to provide for all pensions that will be paid in future in respect of members' service in that year.
In addition, every three years a report must be tabled in Parliament from the government's actuary giving his professional advice on whether or not the amounts in the plan are adequate to cover all the benefits to become payable under the plan. If there are shortages, the government must make additional contributions to cover them. This is disclosure.
While the funding of pensions is another complex and technical area, the point to be understood is that the full cost of all benefits, including those which may not be payable for many years hence, are recognized and expensed as the liabilities accrue. There are no hidden obligations which will only surface at some future date.
As I have indicated, these pension arrangements are legal. The proposal in Bill C-85 will make them significantly less generous for the future. I do not suggest this pension plan will be typical of the retirement arrangements found on average. It will still constitute a very good plan. Undoubtedly, some of the public and some members feel we should have gone further than a 20 per cent reduction in pension, but the consequences of such a step should be examined.
Rational people would agree that you get what you pay for. They would agree that members of Parliament should be fairly compensated for the work done on their behalf. It is unlikely that many of us are here for the generosity of the compensation package. I hope we are here in the spirit of service to our fellow citizens. We are here to do a very important job in the best way we can to serve our constituents.
The decision to seek public office is seldom an easy one in personal terms. It may involve personal sacrifice for each and every individual and for those closest to him or her in terms of their private time and their privacy. It certainly can involve financial sacrifice in terms of interrupting or abandoning a career outside government.
The question is: What level of compensation do we believe is necessary to ensure that qualified individuals continue to offer themselves for the service of this great country?
The Sobeco study commissioned by the previous government and tabled in 1992 certainly indicated that the overall com-
pensation package for members of this honourable House was less than that provided to individuals employed in other sectors in terms of what the report sees as equivalent responsibilities.
The authors of that study, who are professionals in the compensation field, did suggest that one element of the package, the pension plan, was unduly rich and should be cut back in favour of greater direct compensation. We are making a 20 per cent cut in that level of pension and instituting a pensionable age, a step the report also recommended. We are not increasing our pay. In fact, sessional indemnities remain frozen at the 1992 level and will for two years to come, and maybe more.
We have gone a long way in Bill C-85 in responding to the public's outcry that we do reform MPs pensions. We have gone beyond the promise in the red book that there would be an age limit and that we would reduce the input. We have responded to the public's interest and to their concerns while maintaining a compensation package that will not discourage well-qualified candidates from coming forward to serve this great institution.
We should not be reluctant to say to Canadians that we believe what we are doing on their behalf is important enough that it warrants a fair compensation package and that we will listen to their response.
