OTTAWA – A prominent economic think-tank is throwing cold water on the Harper government’s claims about the benefits to taxpayers of MP pension reform, saying Thursday that changes won’t meet Ottawa’s stated goal.
On the day MP and Senate pension reform received royal assent, the C.D. Howe Institute issued its analysis on the changes — as well as on public service pension proposals — concluding that taxpayers are still on the hook for over 50 per cent of the costs.
“The guaranteed incomes those plans promise participants are far more valuable, and their costs and obligations on taxpayers are far larger than reported,” said C.D. Howe president William Robinson.
The key reason, the paper argues, is that the government has underestimated taxpayer obligations for employee pensions by assuming a rate of return on investment at an unreasonably high six per cent after inflation. Using the same calculus as private pension plans, government liabilities would rise to $331 billion, or $100 billion more than Ottawa estimates, the report states.
Treasury Board President Tony Clement rejected the findings, saying the changes will mean MPs, Senators and public servants, including RCMP officers and soldiers, will contribute half the cost of the gold-plated plans.
The Conservative government has trumpeted the 50-50 arrangement — half from participants and half from taxpayer funding — as the test of fairness of government pensions that are far more generous than anything seen in the private sector.
“I do disagree with that. There’s a number of different accounting issues that we have with their look at this. We are quite confidence this is a 50-50 arrangement,” he told reporters.
Clement noted that once the new arrangements come into place, MPs will see their annual contributions to their pension plans rise from about $11,000 a year to just under $39,000, saving taxpayers $29 million over five years.
“The big savings come when we move public servants from the current 37 per cent to a 50-50 arrangement. That kind of saving will be around $2.6 billion over the next five years,” he said.
The reforms also extend the age participants can start cashing in on their plans without penalty to 65.
The reforms received widespread support from the vast majority of MPs who saw political advance in appearing frugal at a time of weak economic conditions and belt-tightening by many Canadians.
But the C.D. Howe authors — Robson and research associate director Alexandre Laurin — say while the changes will start saving money in the short term, taxpayers still bear more than half the risks of changes to the cost of new obligations.
“Mitigating the risk would require converting the federal plans to target-benefit plans — in which benefits adjust depending on funding … or capping taxpayers’ contributions,” the say.
Canadian Taxpayers Federation federal director Gregory Thomas agrees with the institute that the changes don’t quite measure up to a 50-50 split, but praises the government for taking a big first step toward reform.
“It’s a biggest step in the right direction since our organization was founded a couple of decades ago,” he said.
Government pension reform was an original goal of the upstart Reform and later Alliance parties in the early 1990s, the precursors to today’s Conservative Party. Reform and Alliance MPs campaigned in 1993 and 1997 to opt out of the pension plans altogether.
But Thomas said only three followed through. He calculates the three — Reform founder Preston Manning, and MPs Lee Morrison and Werner Schmidt — have missed out on about $1.2 million in benefits to date.
Clement said there are no plans for a second round of reform.
“I think this a fair and balanced approach,” he said. “Paying $39,000 per year for your pension benefits is a fair assumption and we are doing our bit.”