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Pension Plans For Canadian Legislators: A Comparison
Randall Chan

At the time this article was written Randall Chan was a researcher with the Economics Division of the Research Branch of the Library of Parliament.

The decision to enter public life involves a number of political, personal and financial considerations. Few parliamentarians remain in office for twenty-five or even fifteen years and the farmer, businessman or professional who gives up his livelihood to sit in the legislature may rind that his tenure is much shorter. For this reason most legislatures have adopted pension plans which reflect the unique nature of the parliamentary profession. This article compares certain aspects of the existing plans, although such comparisons are difficult due to the diverse nature of service in the various assemblies. The article also provides dollar figures of pension benefits in certain hypothetical cases. The figures are based on certain assumptions about rates of inflation and they are not intended to indicate actual payouts but merely to provide a basis for comparing the plans. Calculations are based on remuneration received in 1980.

Pension plans in Canadian legislatures can be divided into two categories: defined benefit plans and money purchase plans. A defined benefit plan, which is used in Parliament and all legislatures except Saskatchewan requires that the amount of the retirement allowance be calculated according to a formula based on either pre-retirement earnings or the amount of pension contributions, years of service, a benefit rate, and in some cases an allowance for inflation. One of the main advantages of a defined benefit plan is that it allows the recipient to determine the amount of pension benefits before retirement. One argument against such plans is that contributions from members plus invested income may be insufficient to meet all obligations. This could lead to an unfunded liability which has to be financed by increasing the contribution rate, increasing the number of contributors or reducing benefits.

Under a money purchase plan, the employee's contributions and the employer's matching share are held in a trust account under the name of the individual member. Funds accumulate as yearly contributions are made. At retirement the entire sum is used to purchase a life annuity. The monthly or annual retirement income cannot be predetermined since they depend on the amount in the fund and the prevailing rates on life annuities at the time of retirement. In 1979 Saskatchewan changed from a defined benefit plan to a money purchase plan. The former plan remains in effect for members elected prior to 1979 and only these figures are shown in the accompanying tables.

Table I provides a comparative summary of the existing plans except for the Northwest Territories which is in the midst of revising its plan (Yukon does not have a pension plan for the moment although one is under study). The table compares the membership, contribution rate, eligibility requirement, benefit rate, indexing coverage and provisions for survivors' benefits for parliament and for provincial legislatures. The adjustment factor used in calculating the dollar benefits on the subsequent tables is assumed to be ten per cent. In terms of benefit, indexation is the most notable feature for distinguishing one plan from another. It is significant both to the employer because of cost implications and to the employee because of the income protection afforded by indexation.. In this regard Saskatchewan may have circumvented or at least minimized any potential unfunded liability by adopting a money purchase plan. Newfoundland, New Brunswick, Ontario, Saskatchewan and Alberta have no indexing provision. The Nova Scotia Plan is capped at six per cent and the Prince Edward Island plan at eight per cent. The indexing procedure for the House of Commons and Senate is unique. Members contribute one per cent of their indemnity (and salary in the case of Ministers, party leaders and others holding remunerative positions) to a Supplementary Retirement Benefit Account (SRBA). The pension entitlement remains fixed prior to age sixty. However, at age sixty the supplementary benefit takes effect. For example if a Member of Parliament began collecting a retirement allowance of $5,000 per year at age forty-five, assuming an annual inflation rate of ten per cent a year for fifteen years, the total income he or she would receive at age sixty would be $12,500 ($5,000 annual retirement allowance plus $7,500 supplementary retirement benefits). The indexing is retroactive to the age of retirement but only becomes fully effective at age sixty. But from age sixty onward, indexation is applied yearly.

Insofar as eligibility requirements are concerned the commons criteria are age, years of service, the number of terms in office or some age-service combination. Most legislatures have eligibility requirements that involve two of these criteria. Alberta is the only province to make a distinction between a Member of the Legislature and a Member of the Executive Council. The eligibility for MLAs is five years while for the others it is one year.

The highest benefit rate is found in Quebec where members can receive 75% of total contributions after eight years of service. The combination of high pay, generous benefits and indexation provide the highest stream of pension income among the plans.

Canadian Parliamentary Review Cover
Vol 4 no 4

Last Updated: 2020-09-14