mlas show long term vision for their pensions

Ever complained that our politicians are too partisan to work co-operatively on long-term issues? Well they proved you wrong this week.

Ever complained that our politicians are too partisan to work co-operatively on long-term issues?

Well they proved you wrong this week.

By unanimous vote on Wednesday, members of our legislature voted themselves a pay raise of $20,000, or more, each.

Some accused our lawmakers of being too short term; indeed, it’s hard to get more short term than a pay increase that is six months retroactive.

But our legislators also kept the long-term in mind.

They passed a new pension law for themselves too.

What should Yukoners think?

None of the parties promised major MLA raises or pension increases in their platforms in the last election.

And our representatives were too busy working co-operatively on the Legislative Assembly Retirement Allowance Act to put out a press release detailing the long-term implications.

To fill that gap, this column will make a rough attempt.

It has to be rough since pension calculations are fiendishly complex.

Plus our lawgivers did not make it easy by passing a bill with sections like this: “Paragraph 40(1)(a) of the Act is amended by repealing the expression $7,049 and substituting the expression $25,000 for it.”

So here goes.

In order to decide whether we should thank or scold our MLAs, we need to answer two questions.

First, does it serve the public interest to have better compensated MLAs?

And, second, why now?

Or, more precisely, why retroactive?

On the first point, our MLAs used to have the lowest salaries in Canada.

Patrick Michael, respected former clerk of the legislature, noted this in his October report.

And it makes sense that the job of MLA — unattractive in many ways — should be well enough paid that talented and successful people will run for office.

But the salary is not the only form of compensation.

Besides the tax-free $12,500 allowance each MLA will get (down from $16-19,000 under the old system), there is also the pension.

The former clerk noted that our MLA pension plan “compares very well” to MLA pensions in other provinces.

Your columnist also contacted one of his favourite actuaries, who described the plan as “generous.”

So let’s look at the total package.

As an example, let’s look at the 2002 crop of ministers.

There are six of them, plus the leader of the opposition who earns the same. The Premier makes more, while the NDP leader makes less.

In 2006, these ministers made $38,183 for being an MLA plus a tax-free allowance of $16,669 for being a Whitehorse MLA plus $21,147 for being a minister. That totals $75,999, although that understates it a bit since they didn’t have to pay taxes on the allowance.

That sounds like a lot when the average wage in the Yukon was $45,810 in 2005.

But on the other hand, deputy ministers scoff at such paltry sums.

Now, retroactive to last June 1st, they will be paid a total of $112,500 consisting of the MLA base salary of $65,000, plus $35,000 for ministerial duties plus the $12,500 tax-free allowance.

That’s an increase of $36,501, but still less than deputy ministers get.

But the real impact comes later, in their pensions.

The way it works, roughly, is that you take two per cent of your average salary over your highest-paid four years and multiply it by the number of years you were in the legislature.

You can start your pension at age 55, but there’s a penalty of 0.25 per cent for each month before the age of 60. You get your full pension at age 60 without penalty.

To figure out how much this is worth to the 2002 ministers and the opposition leader, we have to make some assumptions.

So let’s assume they end up serving 10 years in the legislature, start drawing at age 55 and live to be 80.

We’ll use a discount rate that takes into account the pension plan’s full inflation protection.

This results in a pension plan with a net present value of around $350,000.

This is much higher than under the previous setup, where the compensation linked to the pension was much lower. And it’s guaranteed, not invested in dodgy asset backed commercial paper.

So, back to our first question: is $112,500 a year plus a pension worth $350,000 after 10 years enough to lure talented Yukoners into the legislature?

Probably.

Now to our second question: why retroactive?

One obvious reason is that your pension is based on your best four years.

The earlier you start the higher salaries, the easier it is to get the maximum pension.

But that’s only from the MLA’s point of view.

From the point of view of the public, it makes no sense to make the increase retroactive.

The increase shouldn’t happen until the next election.

 The increased expenditure of over $500,000 per year on the current crop of MLAs is unnecessary.

They were obviously willing to run for office under the old setup. And we don’t need to do anything special now to keep them from quitting, especially the 2002 ministers whose six-year pension qualifying period ends in November 2008.

The cabinet recently shared its own views on retroactivity, at least for other people.

It announced increases in the Yukon Child Benefit from $37.50 per child per month to $57.50 but, unlike their own pay package, they did not make this retroactive.

“We hope to have (the) changes implemented by mid-January 2008,”said the minister responsible. But we shouldn’t single him out, since no MLA from any party voted against the MLA raises.

So, in conclusion, it’s probably the right thing to do to increase MLA compensation.

But the raises shouldn’t happen until after the next election.

And if our MLAs lose the next election, don’t worry. They’ve raised their severance packages too.

Keith Halliday is a Yukon economist and children’s author.