How the former Reform MPs can keep their pensions with the full support of the public

In 1993, MPs from the then-Reform Party (now part of the Conservative Party) spoke out against MPs' pensions and said they would refuse to collect these pensions themselves. It has recently been revealed that 11 of these MPs are now in line to collect six-figure (defined-benefit, indexed) pensions.

Here's how they can keep their six-figure pensions with the full support of all Canadians: create defined-benefit indexed pensions for everyone.

The Government of Canada already has expertise in administering defined-benefit indexed pensions: it's called the Canada Pension Plan. Unfortunately, the CPP pays a maximum of $934.17 a month, which isn't enough to live in with any degree of comfort or security.

So what they have to do (as I've blogged about before) is allow us to access this expertise - which is already being paid for by our tax dollars - by letting us put our RRSPs, contributions from defined-contribution plans, and any other money we care to throw at the problem into a fund from which the government will then guarantee a defined benefit. The defined benefit would be such that if you contribute your full RRSP amount, you get a return commensurate with the benefits you'd receive from a good employer-provided defined-benefit pension plan.

Based on CPP rates, I think this would be feasible. Maximum CPP benefits are $934.17, which works out to $11,210.04 a year. Maximum annual CPP contributions are $2,163.15. From this, we can conclude that the experts at the CPP can give you a pension of about to five times your annual contribution. Since your RRSP amount is 18% of your income, they should be able to get you a return close to your pre-retirement income if you contribute your full RRSP amount every year.

Contributing would be optional - if you think you can do better yourself, you're welcome to do so - but it would be there as an option for those of us who don't have hardcore long-term investing in our skill set. And I seriously doubt Canadians would begrudge a few MPs their pensions if we all had the security of commensurate pensions ourselves.

Added bonus analogy for why we need professionally-administered pensions for everyone:

Think back to when you were about nine years old. You knew intellectually that one day you'd have to get a job and make money to support yourself. You understood that concept perfectly well. However, you didn't know what to do about it. You'd never been employed or employable, so you didn't know how to make yourself employable. If you'd had to make yourself employable single-handedly, it would have been a hit and miss proposition. All you'd have is hearsay about what makes a person employable, and even if you grok and agree with someone else's assessment of what you need to achieve, you wouldn't necessarily know how to go about achieving it.

Fortunately, you didn't have to figure it out yourself. You were in school. People who knew better than you and had already gone through the process of making themselves employable (and acquired extensive training in how to turn children into functional members of society along the way) had a school curriculum all planned out, so all you had to do was keep going to school and work hard and do well. Be a good girl, and the experts will get you where you need to be.

That's what planning for retirement is like. I've never experienced long-term financial planning. Hell, I've never experienced long-term anything. Retirement is over 35 years away, and I haven't even been alive for 30 years (to say nothing of financially aware). I have some hearsay on how to do it, much of which is self-contradictory, but there's too much blind trust, too much guesswork, and even when I understand what I have to do I don't know how to go about doing it.

This is why we need a professionally-administered plan that we can pay into. We need experts who know better than us and are training in turning investments into defined-benefit pensions to make and administer a plan for us, so all we have to do is be good and pay in our designated RRSP contributions. It's simply unrealistic to expect everyone to be able to figure it out themselves, just like it's unrealistic to expect every 9-year-old to be able to figure out how to turn themselves into an employable adult.