Thursday, March 29, 2012

Canada's MP Pension Plan: Standing Out in a Time of Austerity

Now that the Conservatives have decided to raise the age that the sweaty masses can start collecting their Old Age Security benefits to 67, I thought that it was time to do a quick posting on MP pensions.  I have sourced the data for this posting from the Canadian Taxpayers' Federation publication "The CTF Report on MP Pensions: A Taxpayers' Indictment".

Let's look at a bit of background information first.  Canada's MPs (both present and retired) can start collecting their pensions  at age 55 if they have served at least six years; twelve years younger than the proposed changes to OAS.  MP pension benefits are calculated using the average of the MPs best five years of salary multiplied by the product of the number of total years of service and 3 percent to a maximum of 75 percent of their total salary.  The Prime Minister is entitled to extra goodies; upon reaching the age of 65, former Prime Ministers receive a special allowance worth two-thirds of their extra salary (currently $157,731) which currently works out to $104,665 annually.  Please note that these pensions are fully indexed to the Consumer Price Index, something that the rest of us can only dream about.  As well, MPs that have served non-consecutive terms (i.e. Stephen Harper, Bob Rae etcetera) can buy back in by contributing for the missed years.

Here is a sampling of the pension benefits for some of Canada's highest profile and longest serving MPs of all parties keeping in mind that the median household income for Canadian families was $68,410 in 2009:

Note that the 2015 and 2019 pension benefits assume that the MP will serve until either 2015 or 2019.  The minimum of six years of service means that first term MPs like Elizabeth May will not qualify for their pension until she has put in six years of service in 2017, thus, the data field for her is blank in 2015.  I do find it rather appalling that after serving only six years, a very young backbench hair-comber like Mr. Genest-Jourdain can collect $40,033 annually for the rest of his life after he reaches age 55.

Canadian taxpayers are a generous lot when it comes to helping out those who represent them.  In 2009 - 2010, Canadian taxpayers contributed a total of $102.7 million or $248,668 toward the pensions for each of Canada's 413 MPs and Senators.  Canadian taxpayers contributed $23.30 for every dollar that MPs contributed to their pension and MPs currently receive $10.64 in pension benefits for every dollar that they contribute.  Sweet deal if you can get it!

What is interesting to note is that by law, the Canada Revenue Agency mandates that no registered pension can exceed an accrual of 2 percent of salary for each year worked.  Canada's MP pension plan exceeds this, ranging from 3 to 6 percent.  Using a legal loophole that splits the pension into two parts, the Members of Parliament Retiring Account and the Members of Parliament Retirement Compensation Arrangements Account, allows our illustrious MPs to skirt the law.  Sneaky, eh?

With the Harper government preaching austerity, it will be interesting to see if they make meaningful changes to their own pension plans to set the tone for our future prosperity.  At the very least, Mr. Flaherty and his fellow MPs should move the age at which the MP pensions kick in to 65 as a goodwill gesture to generous Canadian taxpayers.  I wouldn't count on it but it's a nice thought.


In his 2012 Budget, Mr. Flaherty made some rather vague changes to Canada's MP pension plan by pledging to raise MP's contributions to match taxpayers' contributions beginning in the next Parliament.  That rather nebulous change will still allow MPs to retire at age 55 after just six years of service; from my chart above, you can see that near-rookie MPs will still collect over $40,000 per year for the rest of their lives with minimal service at an age that is 12 years younger than when Canadians can collect OAS.


  1. APJ:
    These figures are very interesting.
    I wonder if you have any information on the federal employees' pension in the U.S.?
    I understand it is listed as an explicit liability on the government's balance sheet at $5.8 trillion?
    Does this mean that $5.8 trillion is needed today to fund the benefits into perpetuity?
    Don Levit

  2. I was thinking that exact thing Don. I'll look into it. If the U.S. is the same as Canada, it's a really difficult thing to find as, for some reason, they seem to want to hide it!

    If I find something, I'll publish it.

    Thanks for continuing to read my rantings.

    1. APJ:
      That would be great.
      I do know that the trust funds associated with these plans are handled similarly to the Social Security trust fund.
      They have been borrowed (liquidated) to pay for current expenses and lower the deficits.
      They are, like Social Security, part of the intragovernmental debt. I believe it is around $300 billion.
      Don Levit

  3. Either pay them upfront, or pay them on the tail end with pensions. You can't hide the fact that these individuals are in the prime earning time of their lives.

    Compare their total benefits to executives and middle-management in corporations, and you will be surprised that they are taking a pay-cut to run for office (in general - maybe not for the ndp green horns).

    Didn't Baird ask for Chretien to give back his pension? Can't remember what over though!

  4. Wow; looks like the conservatives are addressing the MPs pensions. First government doing something about the problem!

    Will you commend Harper for addressing the very issue you discussed?


  5. Anonymous 1:52

    The changes, as I noted above, are so minor that they pale into insignificance. We have to face it, the political insiders know how to look after themselves.

  6. I wonder what investment laws apply for these generous pension plans. I'm thinking that any investing should be only in Canadian companies, but I'm betting it's not the case.

  7. It's fine for the Conservative Government to say they are up for " M.P. Pension Reform". If they are serious they would address all factors affecting their pension calculation. They should reduce the 3%/"year of service" to 2% on their total salary. As well, reduce the rate of return on the pension contribution from 10.3% (where can I get a Rate of Return like that in todays market?) to, for example, a link to the TSX - if the TSX increases 1%, their RoR is 1% and if it goes down 1%, guess what (just like my investment it goes down 1%). If they truly want pension reform they should address all aspects that affect the final pay-out (not to mention the 6 year minimum sevice). Finally, this should be presented to the House as a stand-alone bill for proper debate.