4 reasons MPs pensions are so sweet

The federal election results were barely in before the Canadian Taxpayers Federation began calling for an end to lavish severance payments and pensions payable to retiring and defeated MPs.

To understand what the fuss is about, I asked pension consultant and financial planner Marilyn Lurz (Lynmar Associates) to help me with numbers. Here’s what I learned:


- Defeated MPs get a severance package equal to $78,886 (half of an MPs starting salary of $157,731).

- Any MP for six years or longer who was defeated or did not run in the most recent election is entitled an unreduced pension at age 55 of 3 percent of the average of their highest five years of salary times total years of service.

- The pension is indexed by after retirement.

- MPs contribute about one dollar for every four dollars funded by the government.

That means that an MP with an average salary of $150,000 and six years of service will get a pension of $27,000 at age 55,  increasing by 3.3 percent a year after retirement. However, Income Tax rules provide that the rest of us cannot receive a pension equal to more than 2 per cent of final average earnings per years of service. In addition, that pension must be reduced by 3 per cent a year from age 55 to 60 unless age plus service equals 80 (i.e. age 55 + 25 years of service).

Therefore, if you or I had final average earnings of $150,000 and six years of service when we  left a public or private sector organization with a pension plan, the most we could receive is a pension of $15,300 at age 55 ($18,000 reduced by three per cent a year from age 55 to 60). Furthermore, not all public sector and few private sector defined benefit pension plans are indexed.

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