THE CANADIAN GOVERNMENT EXPLAINS THE PENSION CLAW BACK
Here is the story on Bill C-201. Where the CF is referred to, please assume a reference to the RCMP. Any reference to the Canadian Forces Superannuation (CFSA) should also be taken as a reference to the RCMP Superannuation (RCMPSA).
In 1966, members of the CF were paying 6% of their salary into the CFSA. When the Canada Pension Plan (CPP) was integrated with the CFSA (as were all other public service pension plans), CF members continued to pay 6% of their salary into pension benefits. The only change was that 1.8% now went to CPP and 4.2% went to CFSA. Upon retirement, the member receives 2% of his/her best five-year average salary per year or partial year of service.
Members of the CF typically retire well before age 65. When they collect their CFSA upon retirement, it consists of two parts. The larger part (approximately 70%) is the “lifetime benefit” and that amount will continue until the member dies. The smaller part (approximately 30%) is termed the “bridge benefit” and serves to “bridge” the pensioner’s income at the full 2% until age 65, when most people start collecting CPP. Both parts are indexed when the retiree reaches the combination of age and years of service equaling 85, but not before age 55. At the combined 85 and age 55 point, all back-indexing to retirement date is added to the pension benefit and annual indexing commences.
In most cases, the amount of CPP that commences will be at least equal to the amount of the bridge benefit that ceases, thus giving the pensioner a consistent income flow throughout retirement years. This will not be the case under two circumstances.
If the member does not earn taxable income from CF retirement age to age 65, he/she will not have contributed to CPP for that period. Therefore, the amount of CPP eligibility will be less and will likely be less than the bridge benefit, which ceases at age 65. In most cases, working or not is a decision the member makes.
Canadians can draw CPP as early as age 60, with a reduction of 0.5% per month before age 65. Total reduction at age 60 would, therefore, be 30%. That is the amount (plus indexing) that the pensioner will receive for the rest of his/her life. A CF pensioner taking CPP at age 60 will, in effect, be double-dipping the bridge benefit and CPP for five years. This is a good thing, but he/she must be prepared for a reduction in overall benefit when the bridge benefit ceases at age 65. At that point, the remaining integrated CFSA (lifetime benefit) and (reduced) CPP pension benefit will likely be less than the combination of lifetime benefit and bridge benefit. The total pension benefit continues to be indexed. The decision to take CPP early rests with the member.
The CFSA and CPP are working exactly as set up and paid for and do provide for a consistent, indexed level of retirement income for CF members.
The essence of the argument in Bill C-201 is that CF (and RCMP) pensioners should be able to collect both the bridge benefit and CPP beyond age 65. This would amount to “stacking” the CFSA (lifetime and bridge benefits) and CPP, amounting to an approximately 30% increase, even though they haven’t paid for a stacked pension plan. It’s as simple as that.
The cost to implement Bill C-201 would be enormous, with one-time costs (for the CF) being approximately $7 billion and annual costs being approximately $110 million and increasing, according to the Office of the Superintendent of Financial Institutions. Proponents of Bill C-201 suggest that the annual cost of implementation could be covered by diverting CF members’ EI contributions. Annual EI contributions by CF members total only $54 million and would cover less than half the annual cost. In addition, approximately 3,000 CF members use EI benefits every year for maternity leave and parental leave; and those important benefits would be denied. Implementing Bill C-201 would mean an additional contribution amount for each CF member of approximately 2%. For a soldier making $50,000, that would mean $1,000 less take-home pay. Most CF members are above that salary level.
Our government has acted. With the Budget Implementation Act, 2006, the Government approved an amendment to the Canadian Forces, Public Service, and Royal Canadian Mounted Police pension arrangements. In the case of pension arrangements provided under Part I of the CFSA, this amendment, which will operate in the plan member’s favour, alters the formula used to calculate the pension adjustment for those reaching age 65 in 2008 and beyond. This changes the calculation of the lifetime benefit in that the adjustment factor will be lowered from .7 percent to .625 percent, resulting in an increase in the lifetime pension benefit. Therefore, the dollar amount reduced at age 65 will be less, resulting in increased long-term pension benefit.
The very well organized advocates of Bill C-201 propose a number of what are essentially red herrings.
They point to the lack of consultation and input by CF members in 1966. CF members were not consulted, nor were members of other public pension plans that became integrated at the same time. The CF is not a union and doesn’t get to vote on pay and benefits. The leadership of the CF makes such decisions on behalf of the organization and that will always be the case. Communication of this change was sporadic, at best, but the overall integrated pension benefit remained the same.
They suggest that MPs have exempted themselves from what they call a “clawback” of the bridge benefit. MPs have no input into their pay and benefits package. MPs come and go at all ages and do not collect their pensions until age 55. Like all other public service pension plans, an MP pension is a fixed amount based on years of service and salary (defined benefit) and is indexed in the same way as other pensions. MPs do not collect any bridge benefit from or to any age; therefore, there is nothing to “claw back”. Stirring up resentment against public figures is always easy, but it is intentionally misleading in this case.
They point to petitions signed by 100,000 people in support of Bill C-201. It would be normal for anyone to sign a petition that holds an implied promise of more money. Many former senior officers have signed the petition, even though conversation with many of them reveals that they know it cannot go anywhere. There are a great many more who have not signed. These include many former Chiefs of the Defence Staff and leaders who are acknowledged as being strong supporters of the troops. They know that is simply not a legitimate issue.
Many retired members have responded angrily when Government members have not supported the bill. They send in copies of their CFSA statements that show that, at age 65, their CFSA will be reduced by $xxx per month and that they will lose indexing on that amount. What they don’t include is their CPP statement that says they will receive $xxx per month and that it will be indexed.
They propose emotional arguments about how members of the CF have served and sacrificed – themselves and their families. That is true and we all respect and are grateful for that. Canadians serve voluntarily. They are well paid, well treated, and get excellent trades training and experience for future employment. Retirement benefits are generous by any contemporary standard.
The CF / RCMP pension plans are set up exactly the same way as all other public service pension plans, and most other defined benefit pension plans; e.g. teachers plans. Where would the dominos stop and at what cost, if this bill were to be implemented? Given that Bill C-201 would require a Royal Recommendation, it has no chance of being implemented in any event.
The bottom line is that CF pensioners are getting 100% of what they have paid for and that the integrated CFSA / CPP pension is working exactly as it was set up.
Our Government has taken many steps to improve the quality of life of our veterans and their families. There will always be more that we would like to do. There are issues that are worthy of further action and government is pursuing many of those. We will never break faith with those who have given so much to Canada.
Posted 22nd February 2012 by Rick Thomson
