Public service superannuation

• Author: Christopher Rootham
• Pages: 501-523

 

PUBLIC SERVICE

SUPERANNUATION

A. HISTORYOFSUPERANNUATIONINTHEFEDERAL

PUBLIC SERVICE

e federal government has been providing super annuation to federal public ser-

vants in one form or another since . e rst federal government wanted

to encourage the retirement of a signicant number of civil servants who had

been taken over as part of the transfer of certain services from the provinces to

the new post-Confederation federal government. erefore, in  the federal

government appointed a commission of senior civi l servants (the Langton com-

mittee, named for its chai r, John Langton) to exa mine the problem. At that time,

the common method of running superannuation plans was to provide retiring

allowance s based on length of ser vice. ose retiri ng allowances were somet imes

nanced throug h employee contributions (of up to  percent of a civil serva nt’s

salary), and someti mes nanced entirely through t he government. Governments

at that time did not maintain separate interest-earning funds to nance super-

annuation plans: if employee contributions could not pay for that year’s retire-

ment benets, then the government would simply make up the dierence. e

British government, for exa mple, abolished employee contributions i n , and

did not reinstate them unti l aer .

e Langton committee, on the other hand, recommended a compulsory

contribution scheme whereby employees would bear hal f the cost, and the public

SeeSee Margolis v. Canada, [] F.C.J. No.  (T.D.) [Margolis]. Superannuation plans

have always been est ablished by legislation. e te rms of those plans are not subjec t to

collective ba rgaining: Publi c Service Labour Rel ations Act, S.C. , c.  , s. ; s. ()

[PSLRA]. e public service sup erannuation plan is monitore d by a Pension Advisory

Committee, w hich has the mandate to rev iew the operation, design, a nd funding of

benets provided: Public Se rvice Superannuation Act, R.S.C. , c. P-, s. .

501

502         

would bear the other ha lf of the cost. e government rejected that rec ommenda-

tion, and decided that employees should bear a greater proportion of the costs.

erefore, when it enacted the Superannuation Act in , it set out contribution

rates that were designed to cover the f ull cost for new employees: employee con-

tributions were  percent on salar ies of  and above, and . percent on lower

salaries. ese contributions would not cover the full cost of pension benets in

the short term, but the superan nuation plan was meant to be sel f-supporting in

the long run. e basic benet formula i n  was  percent of the average salary

over the last three year s of service for each year of service w ith a  percent max-

imum. Contributions therefore ceased aer thirt y-ve years. e Act contained

special provisions for gratuities or pensions in the case of compulsory retirement

before age sixty w ith service of less than ten ye ars, or on abolition of oce. ere

was no return of contribution in t he case of death or termination of serv ice which

did not qualif y for a pension or gratuity. One of the stated purposes of the super-

annuation plan was to encourage people to join the civil service: by refusing to

return their supe rannuation contributions, the Act a lso discouraged people from

leaving the civ il service.

By , employee contributions were no longer sucient to fund pension

payments, and the government was eectively paying for half the cost of the

superannuation plan (as suggested by t he Langton committee). By , the total

contributions by employees were ,, and the total pension payments were

,: so much for the “pay as you go plan.” In , the federal government

closed the old superannuation plan to new employees, and started a new plan

with a contribution rate of  percent on salaries under , and . percent for

salaries over . Employee contribut ions were put in a fund (the Supera nnua-

tion Fund No. ), and their benets were to be charged to this fund. Unlike the

original superannuation plan, this fund earned interest at the rate of  percent

per annum. e government was requi red to make good the full amount of any

deciency in the fu nd, based on an actuarial va luation of the prospective a nnu-

ities payable from that fu nd. In eect, the government had to make good any un-

funded liabil ities in the fund each year. is usef ul change to the law was quickly

overturned when the Liber als won election in , and in , the government

closed the Act to new entrants completely. Civil servants at the time did not all

protest this decision. Civil servants were dissatised with the superannuation

plan at the time, especially concerning the strict conditions for eligibility, the

lack of survivor pension benets, and the non-return of contributions for those

who did not qualify for pensions. Moreover, the plan was conned to “perma-

nent” employees, leavi ng “temporary” employees wit h no retirement income for

their work. e  “reforms” did address the concer n about return of contribu-

tions at least. e new superannuation plan required employees to contribute 

percent of their salar y each year to the plan, and the plan earned interest at the

rate of  percent per annum, compounded biannually. Employees who died in