:
Mr. Chairman and members of the committee, as everyone else says, it's an honour and a pleasure to be here. I am representing a point of view that was brought to my attention over four and a half years ago by three former service personnel in my riding—Mr. John Labelle, Mr. Roger Boutin, and Mr. Mel Pittman.
Prior to their bringing this to my attention, I had no idea what a benefit reduction was, because no one had ever brought it to my attention. No military or RCMP person or any federal or provincial public servant ever previously brought it to my attention.
What is the issue? It is the reduction of benefits under the Canadian Forces Superannuation Act, CFSA, and the Royal Canadian Mounted Police Superannuation Act, RCMPSA. This takes effect when a plan member retires and reaches age 65, the normal age of eligibility for CPP and QPP, or when a plan member becomes entitled to draw CPP or QPP disability benefits at any age.
Why does this happen? The reduction formula that applies to these pensioners was created in 1966 when the Canada Pension Plan was introduced and integrated with the Canadian Forces Superannuation Act, the RCMP Superannuation Act, and the public service pension plan. All three groups experience benefit reduction as a result of the integration of their plans with the CPP.
I may remind you that the only group of public servants in the country who do not receive a benefit reduction are senators, judges, and your friendly members of Parliament.
When these pension plans were integrated with the CPP, the contribution rates of employees towards their pension plan remained the same. However, the amount of employee contribution was divided between the employees' existing superannuation pension plan and the CPP, with a portion going to CPP and the remaining amount going to the members’ pension plan. I should remind this group that when military or RCMP people do their T4 at the end of the year, they are maxed out on their CPP contributions every year.
Since the contribution rates to the superannuation plans were reduced by these divided contributions, reductions were made to the benefits payable from the employees' pension annuity when members receive CPP benefits, either at age 65 or when they become eligible for CPP disability.
At the time these plans were integrated, members were not given options or choices about how they wished to fund contribution obligations. Basically, this decision was made on their behalf without consultation. I say “consultation” in the context of the military and the RCMP, not necessarily the general public service.
A unilateral decision was made to integrate their annuity plans with CPP contributions, rather than stacking the plan or increasing their annuity contributions, with members unaware of the reductions to their pension plans in their retirement years. There is no question that the binders they received when they joined up contained some of this information. But when you're 18 to 21 years old and you join the RCMP or the military, the last thing you think about is your pension plans and deductions. In fact, on Thursday you're going to hear from Mr. John Labelle, who was a financial administrative officer in military service at that time. He was unaware of this, and he was giving financial advice to members when they were leaving.
How is the benefit reduction formula determined? The amount of the reduction is determined by a formula in subsection 15(2) and subsection 15(3) of the CFSA. For the RCMP, the pension is reduced by a formula in subsection 10(2) and subsection 10(3) of the RCMPSA.
In 2008, the standard formula for pension reduction in the three plans—the public service, the CF, and the RCMP—was amended. Minor and gradual decreases in the benefit reduction formula were implemented in 2008—0.685%, with plans to reduce the formula to 0.625% by 2012.
Bill C-201, an act to amend the Canadian Forces Superannuation Act and the Royal Canadian Mounted Police Superannuation Act, would eliminate the deduction of annuity for retired and disabled members participating in these pension plans. This bill was introduced in 2005 and reintroduced several times.
I would remind my colleagues in the committee that the bill does not apply to any other federal or provincial public servants.
So why eliminate it? Eliminating the benefit reduction for members of the CF and RCMP would assist in recognizing their special contributions to our country. This is actually the crux of my argument. I'm not arguing that they're not receiving everything they've paid for. No one has ever argued that they didn't. But the reality is that the men and women of our services and the RCMP play a different public service role from anybody else in this country.
I have met a great many individuals who have travelled across this country, and I met one guy who did that 22 times in following his military career across the country and around the world. His spouse, unfortunately, was not able to work; when the employer of that spouse found out that this man was in the military, they didn't hire her, because they knew they were going to be gone very shortly. She, as the spouse of a military person, the backbone of our support services--as we call them, the “invisible force” from the military family resource centres--was unable to contribute to her own pension plan because her husband was serving her country and thus had to move across very many times without any consideration or concern regarding her financial well-being. Plus there are the extended family separations. We all know what our men and women in the service go through in terms of that. The reality is, they work a great many hours of overtime, which of course was part of the service, but there was no time clock. They don't get extra hours for what they've done. It's hazardous, there are health and safety concerns, and there are long stretches of everything else.
The reality is, colleagues, that we always say we support the troops. In my belief, we have to support them long after the uniform comes off, all the way to and including their headstone. The reality is that they play a different public service role in our entire country. These men and women allow us to have a good night's sleep, so I think it's time for us to allow them to have a comfortable sleep in their golden years.
As well, members of the CF and RCMP have noted that their reduction of benefits does not apply to anyone else. Again, it doesn't apply to MPs, senators, or Federal Court judges. The decision to integrate the plans was made, again, unilaterally. It was done without their consultation, and this is something that I believe can and should be shared.
The reality is, now you're going to ask, how is it going to be paid for? There's also something that members of Parliament, senators, and judges don't do, which our military and RCMP do; we don't pay into an unemployment insurance plan, but they do. Once an RCMP or CF member collects an annuity, they're ineligible to collect unemployment insurance. Thus we have literally thousands of members who have paid into a plan from which they have absolutely no opportunity to collect. What the government can do, and this is one idea--it's not in the bill, but it is one idea in order to simplify the system and overstep the initial cost of implementing Bill C-201--is simply cancel that EI deduction and transfer that amount over into superannuation and you would cover the loss.
Right now in this country we have--depending on the current figures--a CF vet population of 593,000, a war service vet population of 156,000, and an RCMP vet population of around 30,000. This bill only applies to 96,000 retired military and RCMP personnel. It doesn't apply to every single veteran who's out there, because you would have to have served over 20 years in order to collect the annuity. Now, of course, with the changes to the pension plans, the new entrants into the military have to serve 25 years before being eligible for a pension. This is something that also gets lost. Without consultation with the military, they tacked on an additional five years prior to eligibility for a pension.
If I may just say, as a sidebar, the military and the RCMP do not have unions or associations that can argue or bargain these things for them. Once they sign up, they're “voluntold” for the rest of their natural career. The reality is, just recently, the RCMP negotiated through their pay councils with the federal government, in a signed deal, a 3.5% increase, which was arbitrarily taken away from them without consultation on December 23 and reduced to 1.5%. This is how we treat our men and women who wear the red serge. This is basically, financially, how we treat our men and women of the armed forces. We give them the verbal platitudes, we offer them some veterans' benefits, but at the end of the day, one of the most nagging things they find is what they call a clawback of their pension, but in truth it's a benefit reduction.
Support for Bill C-201 comes from over 110,000 individuals and very many high-ranking colonels and generals. The Royal Canadian Legion, the Army, Navy & Air Force Veterans in Canada Association, the Air Force Association of Canada, as well as the Canadian Association for the Fifty-Plus, and the national chair of the Armed Forces Pensioners'/Annuitants' Association have all supported the initiative in this regard. In fact, former Royal Canadian Legion Dominion Command President Jack Frost wrote the Minister of National Defence in 2008 asking him to cancel the benefit reduction to reflect the years of commitment and loyal service of veterans. The legion says the clawback occurs at a time in life when the member needs the income the most because of declining health and other financial realities.
The reality is, Mr. Chairman, let me say in conclusion, that by being offered an end to the benefit reduction, those members of the armed forces would on average, according to our calculations, receive anywhere from $200 to $300 additional per month. By receiving that additional amount, they would also receive less old age security, because OAS is based on your income. The government would save there, and additionally, these people would be entered into a slightly higher tax bracket. Further, what do you think the average 65-year-old or disabled person would do with their pension once they receive an additional amount at age 65? They would pump it immediately back into the economy, thereby offering more tax savings to the government.
In conclusion, I want to offer two scenarios for what happens with the CPP disability clawback. I'll call it a clawback because that's what it was referred to me as by the two men, both of them RCMP officers, both medically released from the military. You'll be meeting one, a Mr. Roddie Ohandley, if I'm not mistaken, very shortly after Remembrance Week. His is a classic example of what happens when a military or RCMP person is medically removed from the military and applies for Canada Pension Plan disability. Jim Hill was a classic example, and so was Mr. Ohandley.
At age 55, Mr. Ohandley was medically released from the RCMP after serving close to 30 years of service. He received his RCMP annuity; he also received from Great-West Life an insurance top-up for his disability. He was then told that Great-West Life would only cover him for two years, and that he should then apply for Canada Pension Plan disability. He did and he received it. He received a lump sum, dating back to his time of release, of over $16,000.
The first letter he got was from the RCMP annuity individuals, who said he owed them $11,000. So the $16,000 was immediately taken down to $5,000. He's very afraid of what Great-West Life is going to do, because Great-West Life is going to come back and ask him for that two-year gap that they paid. At the end of the day, he's going to end up owing the government money, or he's going to end up owing someone money. This is a man who served his country and who now owes the government money, if he gives back Great-West Life the money they're soon going to ask for. The CPP disability clawback is simply wrong.
Jim Hill had a stroke at work. They found he had cancer. They gave him the good news and the bad news that he'll survive the stroke but that they were not sure about the cancer. He was medically released as disabled from the RCMP. It was the same thing: he received his annuity—I forget the exact amount—and was told to apply for Canada Pension Plan disability. He said to himself that if he got that more than $800 of disability along with his annuity, his family and he should be okay, if he survived the cancer.
Sorry, Jim, that's not how the game is played. You'll get your CPP disability, but it's deducted dollar for dollar from your annuity. This is a man who served his country for 32 years. He's disabled, out of the RCMP, and the first thing we do is say to him, “Sorry, Jim, you're entitled to your CPP disability, but because of the plan that happened in 1966, we're deducting that, dollar for dollar, from your annuity.”
You tell me whether this is fair. What the 110,000 people who have been writing me on a continuous basis have been asking for is fairness. They have a completely different public service role. They're not saying they didn't get all the benefits they paid for; what they're saying is that fairness is fairness. If it was such a great deal for the RCMP and the military, then why didn't members of the Senate, the members of Parliament, and the federal judges fall into this bailiwick as well?
Ladies and gentlemen, I'll stop right there. I thank you so much for the opportunity to finally bring Bill C-201 to the committee stage. I look forward to your questions.
Merci. Thank you.
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I'm not going to talk about which committee goes to it or anything. But it's unfortunate. I think he has unnecessarily raised an emotional level without having factual background to deal with it.
This government, former governments--Ms. Sgro was part of one, and it goes right back to the beginning--have looked at this and have thought that in terms of fairness, this is how the public service receives pensions. They make contributions and they get a bridging process to take them through so that they get fair treatment right through to the CPP time. We can argue about whether it's right or wrong or fair, and I think probably there are some points there that are worth looking at. It doesn't change the main premise that this is a fair pension process.
Second, I feel that the disability issue is important. As you well know, since you were part of the bill, that's not necessarily the thrust of this bill. But it's an important issue that I think this committee should look at, and I think it has some merit.
I think it's really important, Mr. Chair, that we remind ourselves that it is extremely important that this pension process, this public service pension process, of which these are members, is funded properly. It's extremely important that it in fact is fair to all the participants. There's no question about that. There are issues with each and every pension. I think it's fair to discuss them. But as a general premise, this in fact is a compensation process that was thought out carefully and was funded carefully. As far as using the EI process, we have some experts today who can deal with that. But to leave the taxpayers with the idea that this is not going to cost anything.... I don't know who your experts are, but we do have experts this morning who will deal with the financial part of it. Whether the numbers are exactly correct, we can debate, but there's a huge cost to taxpayers in this.
I think every member supports the military, supports the veterans, supports whatever. I really think it's important. I get a little frustrated--you do a lot for veterans, I have no question--because you have not supported one financial initiative for veterans. There are very, very important programs that provide absolutely critical and essential services. You have voted against every single one that has come forward in the House.
My question, very specifically, is how you can take us down this road with the false expectation for the military folks, and not, at the same time, support the financial initiatives that are so very critical to our veterans and to former service people. My question is specific to that. How do you arrange it so that those two match up?
:
Thank you very much, Mr. Chair.
Mr. Stoffer, I have to applaud your dedication to the whole issue of veterans, and nobody can ever challenge that. You've brought issues forward that needed to be brought forward and fought them through.
On this issue, we all know what it's like when you are 18 or 19, or maybe 35, and someone gives you the book and says this is part of the employment contract and this is how things will work. Yes, everything's great, because all you want to do is start your new career and start your job. So you don't look at all of the wording that's in there about all of these things.
Everyone from the bureaucracy I have asked about this issue indicates that they outline all of these things: what will happen with the reduced benefits, the benefit reduction—not a clawback, as you often refer to it. But again, many of us wouldn't be listening. I always put myself in the other person's position. I wasn't really paying attention when I was 35--“It's a long way away and I'm sure it must be good”, and all of that.
The thing I'm concerned about is where do we go from here, recognizing that there are a lot of people who didn't feel they got the full information? But that was yesterday and this is today. How do we move forward? We don't have the money, being realistic here, and I'm going to be perfectly honest, I doubt it's ever going to go backwards. I'm talking about where we go in the future, about the changes we would look at happening, so that we make sure people know about whatever changes need to happen.
It was the union that flagged this originally, back in 1996, that asked why its members should be paying twice. They were the ones who pushed for this reduction, is the information I get from the bureaucracy.
Again, I don't want to go backwards, because if we had to try to do this retroactively, all of those people would have to turn around and change their contributions, right? So we're going to go back and ask thousands of other people to all of a sudden send us money to make up for what wasn't paid back then to bring it up to that level. None of that's going to happen, so let's just move it forward.
The changes that need to happen as of today are in our hiring practice, to get a sign-off from individuals, and more importantly, to move it forward so that we're doing this right, so that there is not a benefit reduction, because it is significant for people. So how do we make those changes for the future and not for the past?
I'm not sure where they all are, but I have three colleagues with me from the Office of the Chief Actuary of the Public Sector Insurance and Pension Programs: Michel Rapin, Mario Mercier, and Lynne McKenna-Fleming, who is the acting DG, compensation and benefits.
Thank you, Mr. Chair, and thank you for the opportunity to discuss Bill C-201 with the committee.
My remarks will be directed to the Canadian Forces Superannuation Act, but apply equally to the RCMP plan.
First, I want to thank this committee for their good work on behalf of serving members and veterans.
Although I don't support this legislation, it has nothing to do with the profound respect and admiration that we all have for the Canadian Forces and RCMP. I'm proud of my own military service and the people I served with, and I'm very proud of the men and women in uniform today. They and their families do so much, and they have every right to expect that the Government of Canada will take care of them in return. That is what we are doing and what we continue to try to improve.
As the committee knows, the Canadian Forces Superannuation Plan was integrated with the Canada Pension Plan in 1966. The pensions were blended and not stacked, meaning that part of our pension contributions now went to pay for CPP benefits. This kept the overall contribution from increasing.
Just like payments into the plans, benefits of the two plans are also blended and not stacked, meaning that we get benefits from both plans. Total premiums and total benefits remained essentially the same, and we are getting 100% of what we have paid for. The CFSA compares favourably with other pension plans, and only about 30% of Canadians have such defined benefit pension plans.
There is no doubt that the integration of the pension plans was not well communicated. I have spoken with people who did get briefed, but most did not. I don't personally recall any briefings, although, as was pointed out, I was probably so preoccupied with going through pilot training at the time, as an 18-year-old, that I probably wouldn't have remembered anyway. I don't doubt that it was covered in the daily routine orders that were published every day. The situation is briefly referred to, and I think that was mentioned earlier, in the Digest of the Canadian Forces Retirement Benefits, which every member gets on leaving, and on page 19 it says:
Annuities under the CFSA are subject to a reduction when an annuitant reaches age 65....
It goes on to say more.
Ultimately, every member is responsible for knowing and understanding their pay and benefits. The system didn't make it as easy as it could have in 1966, for sure, but that is now history.
Let me just state how I personally relate to Bill C-201 and the issues that surround it. I joined the Royal Canadian Air Force in 1964 at age 17 and served 31 years, retiring in November 1994 at age 47. I started drawing my pension of 62% of the average of my best five years' salary. The amount remained the same until cost-of-living indexing kicked in at age 55 and after I had reached the 85 point in years of service plus age. Eight years of indexing were added to my pension in one lump, and that amounted to about a 10% increase, because obviously those were times of fairly low inflation. Annual indexing for the past seven years has brought very modest annual increases in these times of low inflation.
I've paid for 25% of my pension and the taxpayers have paid the other 75%.
Part of that pension is the lifetime benefit and part is the bridge benefit. The bridge benefit is generally about 30% of what the newly retired member receives as an initial pension, and it is intended to bridge the time between when the member retires from the service and when the member collects CPP, normally at age 65. At age 65, the bridge benefit disappears. It's got nothing to do with CPP per se. At age 65, the bridge benefit disappears and is replaced by CPP. This ensures a smooth flow of total pension income throughout retirement years.
One thing this government did was change the formula for calculating CFSA benefits to increase the lifetime portion. This is to the advantage of every pensioner and should mitigate to some degree the concerns that gave rise to Bill C-201.
This is an emotional issue and I understand that. I take no pleasure in opposing a position strongly held by people I care about, but I have to be honest with them. Even though I would stand to benefit from this bill, it would have been inappropriate for me to support it given all the facts.
I believe that several points are relevant. The CF and the RCMP are not unions, were not unions in 1966 and are not unions today, and we don't get to negotiate pay and benefits. On the CF side, that makes us just about like every other military in the world today. It is wrong to suggest that we are picking on the CF and the RCMP.
The public service superannuation, other federal pension plans, provincial plans, most teachers' plans, and many others are set up exactly the same way. We are getting exactly what we paid for, and the CFSA is based on two simple things: how long you served and what were your best five years.
Before age 65, military and RCMP pension plans deliver 2% per year of service, based on the average salary for the best five years. In the case of the CF and the RCMP, it is common to retire in our forties or early fifties. We collect our pensions immediately, where others do not. CPP was set up on the assumption that Canadians would generally work until age 65. People can choose to work or not--most can after retirement from the CF or RCMP--but everyone should do a bit of homework to figure out what's coming down the road. People don't plan to fail; they fail to plan.
When someone retires before age 65 and works at something until 65, their contributions to CPP will generally ensure that the CPP they collect will at least offset the bridge benefit that disappears at age 65. That's the way the bridge benefit was calculated in the first place. If someone does not contribute to CPP after retirement from the CF until 65, they will probably get less, for sure, because they haven't contributed to it. In my case, my CPP will exceed my bridge benefit by about $300 a month. We get what we paid for.
Many people take CPP as early as age 60 and take the 0.5% reduction per month before 65. So it's a 30% reduction if they take it the full 60 months early. If they take CPP at age 60, what the CF and RCMP members are doing for that five years is double-dipping their CPP and the bridge benefit, and that's a good thing.
The bridge benefit will still disappear at age 65, and contrary to what was said, it has nothing to do with CPP. It's apples and oranges. It's the bridge benefit that disappears at age 65, regardless of when you take CPP. There's no relation at all. So if you have taken CPP early, you are taking a reduced CPP. When your bridge benefit disappears at age 65, which it will do under the Canadian Forces Superannuation Act, then yes, you will probably wind up getting less.
If you do the math, in most cases you are still better off taking the CPP early, but there's a crossover point, depending on your personal circumstances, that somewhere down the road the benefit of double-dipping is going to disappear. Figure out what that age is, and if you think you're going to live longer than that, maybe don't take it early. But who knows?
Taking CPP early is a personal choice, but I emphasize that CPP is here and CFSA is there. The only relationship is that, at age 65, the bridge benefit part of CFSA disappears. It has nothing to do with what your CPP is.
Those in favour of Bill C-201 sometimes put forward arguments about how much members have suffered and sacrificed during their careers. I can personally identify with those arguments, but they are emotional and should not devalue the worth of a properly constituted and financed plan that operates exactly as it is supposed to. In my military career, I've moved about 20 times. My wife was a registered nurse. She managed to work wherever we were. I served out of choice. She served out of choice in following me, so far, for 41 years, possibly out of curiosity, but we chose to serve. I can tell you, it was the best job I will ever have in my life. As much as I enjoy this one, nothing will ever top my military career in terms of my personal satisfaction and enjoyment.
I get a lot of letters and most of them are unfriendly. What I'm typically getting is people sending me their CFSA pay slips with the notice that their CFSA pension will decrease by some amount at age 65, as per the plan, and they're mad as heck. What they're not sending me is their CPP statement, showing how much their CPP will be. They're also upset that they will lose indexing on the amount of the bridge benefit deducted, but what they are not understanding is that they will pick up indexing on the CPP amount. It really does add up. We didn't pay for a stacked pension and we're getting exactly what we paid for. That makes us the same as other pension plans.
People bring up the money that was transferred from our pension plans to general revenue in the 1990s. That total amount was actually $32 billion from the RCMPSA, PSSA, and the CFSA, with the CF share being about $15 billion. As egregious as that may have been, it was carried out by the government of the day and is now history. There is simply not an extra $15 billion or $32 billion out there to put it back. The bottom line on our pensions is that, whatever happens to the actual investments to support it, our pensions are guaranteed by the Government of Canada.
Another red herring that is totally apples and oranges and is regularly used, and was used several times today, is that people have been led to believe that somehow MPs and others have exempted themselves from a clawback. In the first place, we have zero input into our compensation package. Second, MPs come and go at any age and do not collect a pension until age 55. Third, there is no clawback at 65 because we didn't get a bridge benefit from or to any age and there's simply nothing to claw back. It's a complete red herring, and it is there simply to stir up outrage at people who are easy targets. Being an easy target is part of this job, but this is disingenuous at the very least.
Folks also point to a petition that was signed by over 100,000 people. I said it in the House and I'll say it again: if somebody gives you a petition and says if you sign here you might get extra money, you're probably not going to question it. And that doesn't make someone dishonest or dumb; it just makes them human. I've talked to many who signed the petition without question or who knew that it wouldn't or couldn't amount to anything. There are also many generals who are rightly known as “people people” who have not signed the petition and who understand the reality of the situation.
Mr. Chair, the false premise upon which Bill C-201 is based is not the only argument against the proposed legislation. There is also a prohibitive cost attached. There would be a one-time past service liability cost of $7 billion, and those numbers come from the Office of the Superintendent of Financial Institutions. We can delve into more of that if we wish.
In addition, plan members and Canadian taxpayers would have to bear the burden of increased and future contributions. This could add up to significantly increased pay deductions. Would it be fair to ask taxpayers to pay the increased burden when most of them do not have company plans of their own?
The government does have a responsibility to our service members, and we also have a responsibility to the Canadian taxpayer to exercise careful stewardship of the money they entrust to us. There are some legitimate issues, and we digressed—as always happens in these things—to discuss some of those in the first hour. There are legitimate issues out there that should be addressed and should be discussed, but none of those are discussed under Bill C-201. So Bill C-201, in my view, is not a starter for the reasons I have mentioned, as regrettable as that is. I'd love to be able to collect something I haven't paid for. I'd love for all of us to be able to do that. But it just doesn't work that way.
Mr. Chair, thank you, and thank you to members of the committee. We'd be pleased to answer your questions.