Quote:
Originally Posted by Slava
Well it's a rather thankless job (just ask Jason Kenney!!), so if you want people to leave private sector work and try to get elected there has to be some compensation aside from notoriety and pure altruism.
Most people don't know how pension plans are supposed to work though. The employee contributes, the employer contributes and the money is invested one way or another to provide an income down the road. In the case of a lot of public institutions the pensions are defined benefit (DB) as opposed to defined contribution (DC). A defined benefit is where the benefit is set and no matter what the performance of the underlying investment the employee receives a set and pre-determined pension amount.
More and more plans are DC plans where the employee chooses how to invest their contributions and the employers contribution. The size of the pension here is based on how that investment performs and there aren't the same guarantees as a DB plan.
Thats a pretty basic overview, but a major consideration. While the 24:1 ratio is agreeably too rich, the figure isn't 1:1 either. First you have to have some matching from the employer (lets say that this is a mere $1 for every dollar the employee puts in). This probably doesn't match the plan that many people in Calgary have with an oil company, at least not many that I've seen, but its simple. So before we've accounted for any investment growth the money has doubled once. The investment growth is obviously more of a moving target, but realistically the money should double again 3-4 times before withdrawals begin (over say 30-35 years). Now the original dollar is worth say $16-32 depending on whether its 3 or 4 times.
So here's another difference between DC and DB. If you are withdrawing and on a DC plan you're going to reduce risks, at least for the vast majority of your funds at this point. This isn't so much about investment strategy, but about preservation of the funds so you don't have to go back to work or anything. A DB plan though is different because other employees are contributing to the pool regardless of you retiring...the investment style doesn't have to change because of your life changing.
Anyway, all my point is here is that the 24:1 ratio might well be too rich for people who serve for a limited period, but for long term plan members its not a huge stretch. Could the figure be smaller? Sure. At the same time though its not complete pie in the sky.
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Generally, the argument in favour of these pension amounts is that you are looking to attract quality people and secondly, these quality people would typically be sacrificing very lucrative careers in the private sector for what might be only a limited time and you have to compensate them for that to make it interesting.
I'm not saying that this tactic is actually attracting such high quality people. Just pointing out the logic.
From my observation, politics doesn't necessarily attract the best and brightest among us but rather those most motivated by power. Those are often two different things.
Therefore, generous pensions for this "thankless job" might not be necessary since you're getting people who might just do it for free simply because of how they're self-motivated.
I like the theory of very generous pensions to attract the best and brightest but those aren't necessarily people who would want to be involved in this type of activity anyway.
It might be interesting to look at the current Parliament and audit what each were doing and how much they were paid before they were elected.
Cowperson