Ricardo “Gladiator” Welch Added Express Story By Dr Terrence W. Farrell JUDGES & MP’s SALARIES AND PENSIONS BILLS ARE BAD POLICIES The immediate impetus for the legislation appears to be what the Lower House viewed as (a) the failure of the SRC to deal with the predicament of retired judges and (b) the deficient and unacceptable recommendations for the base salaries for MPs made by the SRC. MPs pointed out that the workload of parliamentarians had increased over the years and would increase further with the implementation of the revised standing orders. The Opposition has also floated proposals to limit the number of ministries and increase the numbers serving the various oversight committees from the back benches. Government seems to have decided that it would not reject or amend the SRC recommendations, thus leaving the base salaries of MPs as recommended, but sought instead to address the pensions of parliamentarians at the same time it was addressing the pensions of retired judges. The compensation of sitting judges had been settled by the SRC whose recommendations were accepted by the Government. Essentially, the legislation does an end run around the SRC and (1) significantly enhances the pensions of all judges in order to redress the position of retired judges and (2) significantly inflates the pensions of legislators to ‘correct’ what was perceived as inadequate base salaries recommended by the SRC. The nature of job of the legislator needs to be clear. It is not a permanent job. It is in fact in the nature of contract employment. Tenure depends on the electorate and on the conduct of the parliamentarian which could lead to his dismissal from the party. While tenure may be uncertain, an individual parliamentarian may end up serving for a very long time whether on the government benches or in opposition. (It is unlikely that an independent senator whose appointment is at the discretion of the sitting president, will have an inordinately long tenure in the Senate.) Whether elected or appointed, the job may or may not be viewed as full time, depending on the jurisdiction. If it is viewed as full time but of uncertain tenure then fairness demands that the legislator’s terms and conditions take into account that he may have to transition back to other employment on leaving office and that that may not be easy. If the job is viewed as part time, transition considerations would not be relevant. The part time legislator is viewed as always otherwise employed. Once the nature of the job of MP is clarified, the development of appropriate comparators can then be done so that one is comparing more or less, like with like. The key comparator groups should clearly be local, whether they are senior public servants (as in the UK and Australian approaches) and/or the local private sector. However, is not easy to make appropriate comparisons with jobs in the private sector since the responsibilities and motivations are quite different. International comparators are not necessarily inappropriate, but one must ensure that we compare like with like and take into account the level of development of the comparator countries, the size of the legislatures and how those legislatures actually operate. Currently T&T parliamentarians, other than those holding offices in the Executive or Parliament, are considered part time. They are assumed to be employed or employable elsewhere and that parliamentary service is not the main source of their income. In the UK and USA, legislators are viewed as being full time employed in the service of the public. In the USA, a congressman is not allowed to earn more than 15% of his income from sources outside of Congress. While the position in Antigua and Barbuda and perhaps India is unclear, in all the other comparator countries the pension scheme is contributory and the scheme in some cases is funded. In T&T, the scheme is also contributory and structured as a defined benefit scheme so that the taxpayer bears all of the risk in meeting the pensions. However, pensions are not funded but are paid out of the Consolidated Fund as they arise. Bearing in mind that in Trinidad and Tobago the job of MP is not permanent and is part time/contractual, what the comparisons tend to reveal is that (1) T&T now would have the most generous qualifying period of just 4 years; (2) while the comparators limit the maximum proportion of pensionable income to be more or less consistent with that of normal pension plans in their jurisdiction, in Trinidad and Tobago, the maximum can be 100%, well above the limit in this jurisdiction of 66 2/3%. In respect of the legislation passed by the Lower House no estimate of what the proposal will cost the Treasury now and going forward has been provided. Equity The proposal significantly enhances the pensions and hence the overall compensation of legislators compared to other public servants and the pension formulae are superior to those found in the private sector. The key enhancements are: (1) the basis of calculation proposed includes allowances which are not included in the calculation of pensions for public servants; (2) the qualifying criteria are relaxed—the ‘vesting period’ is now 4 years where for most private sector plans, the vesting period is 5 years; (3) senior public servants for example would have to work 30 years to qualify for a pension equivalent to 60% of final salary where under the proposal a legislator would have to serve only 10 years to qualify for a pension equivalent 60% of salary plus emoluments; (4) the maximum pension is now 100% of pensionable emoluments cf. max of 66 2/3% under the current law which was consistent with the maximum under other public and private sector pensions. In the case of judges, the pensionable emoluments also includes allowances, and judges’ pensions, like their salaries, are tax-free. Moreover, the pensions of retired judges are now to be indexed to the salaries of sitting judges, an indexation method which is highly unusual since the needs of retired persons are assumed to be different from those who are still employed, paying mortgages and educating children. Unlike the parliamentarians, senior public servants and other persons falling within the purview of the SRC will not be able to unilaterally adjust their compensation or the pension component of their compensation. Consistency The proposals appear to be motivated by expediency and out of sheer frustration with the operation and non-performance of the SRC over many years if not decades. However, there was apparently nothing about this in the manifesto of the PP nor has the Opposition hitherto raised the pensions for legislators as a policy issue to be addressed. It was triggered by the lobbying of the retired judges and by the SRC report with which parliamentarians were unhappy given the impending promulgation of the revised standing orders of Parliament which propose significantly more committee work for MPs and the reality that serving constituents has become a demanding 24/7 job for members of the Lower House. If implemented, the proposals will place the SRC in a difficult position since a significant element of what it is required to assess in the terms and conditions of those within its purview has been preempted or removed from its consideration. This will certainly influence how it then views base salaries of the positions within its purview going forward, given that the formulae for pension entitlements would have been set by these pieces of legislation. It places the SRC in a difficult position in respect of other positions in the public sector for which it has to make recommendations and would do so based on internal comparisons with the jobs of parliamentarians and judges, which have now been distorted by the legislation as proposed. The SRC adverted to the difficulty which including allowances would present at paragraph 51 of the Report laid in Parliament. In an attempt to buttress the case for the legislation, the objective of redress has since been conflated with the objective of attracting highly qualified persons to the judiciary and into public service as parliamentarians. Both objectives are laudable. However, the enhancement of pension benefits is not the preferred way that most compensation managers would propose in order to attract talent. Usually, they would seek to improve base salaries and allowances or current income. Pensions are secondary, not least because pension benefits are much less flexible, being determined by legislation, the type of pension schemes, the specific wording of trust deeds, actuarial opinion and valuations, and by the conventions surrounding the structuring of compensation and relativities. Implementability While the legislation is technically implementable, it is likely to have negative collateral effects. One wonders why the public servants would accept the revised pensions for parliamentarians and not agitate for improved pensions for themselves. Questions have been raised about the position of magistrates relative to the judges. There is already adverse commentary on the proposal and this may galvanize public rejection of what would be seen as self-serving policy. Top executives in the private sector and professionals in private practice (e.g. attorneys at law) will also take note of the enhanced compensation of parliamentarians and judges and seek to adjust their compensation accordingly to maintain current relativities. In short, the proposal if implemented could have a strong upward push, not only on pensions but even on base pay. The effects on the judiciary could also be significant in terms of the unintended consequences of the legislation. The Chief Justice would receive a pension that is 100% of his current salary inclusive of allowances and moreover indexed to the salary of any successive CJ. Why would the CJ and judges generally not opt for early retirement in the knowledge that their retirement income would be the same as the income they receive while working very hard! The incentive to work on the part of the Judiciary is likely to be distorted. Legality It is trite that the SRC only recommends and that legislation is required to give effect to its recommendations. The power of the Parliament to do so is not in question. The real question is whether the Parliament ex propio motu can initiate changes to the terms and conditions of those persons and positions who are within the purview of the SRC. Parliament has arguably trenched on the purview and authority of the SRC which could give rise to constitutional issues if not challenges. The SRC has already complained to the President claiming, rightly, that its constitutional role and functions have been subverted by the legislation in respect of the parliamentarians and in a backhanded way, by the legislation in respect of retiring judges which affects sitting judges. In this jurisdiction, the Constitution is supreme, and the action of the Lower House in passing the bills, even if found to be strictly legal and constitutional, are at the very least improper. Sustainability Policies which have to be reversed or significantly amended shortly after implementation lend to policy instability and loss of confidence in the policymakers. The question here is, if implemented, is the policy likely to be sustained for a reasonable time or will it be soon reversed or compromised? Can the policy stand the test of time? If implemented, the policy will create rights for judges and for all parliamentarians who served after 1976 and who will want to benefit from the right to the significant income that would have accrued. Amendment or reversal will be resisted by its beneficiaries. However, those persons who perceive that they have been or are being unfairly treated, will want to stake their own claims to enhanced compensation or at least enhanced pensions. The groups which have already vocalized the position that they are hard done by are the teachers and senior public servants. It is predictable that other groups will take note of the enhancements to the compensation of parliamentarians and seek to enhance their own compensation. The proposals as they stand pervert the incentive for judges and the CJ to remain in the Judiciary, especially as there is no qualifying period for the enhanced pension to be accessed. An unintended consequence of the legislation if implemented is that persons will be incentivised to join the Judiciary, but will remain for only a short period and then leave to enjoy a pension for life equivalent to their current salary and indexed to that of sitting judges. The Judiciary will become a revolving door at considerable expense to the Treasury. This would clearly not be sustainable. Summary and Conclusions The legislation • While prompted by genuine hardship on the part of retired judges, was promulgated out of pique and frustration with the work of the SRC; needless to say emotions are not a good starting point to make good policy. • Treats part-time MPs as if they were full time MPs when that matter has not yet been settled; even after the revised standing orders take effect, there has to be a determination by the same SRC that the new standing orders fundamentally increases the workload of MPs such that the job can be considered full time; the Parliament will probably also have to impose restrictions on MPs earning other income while serving as MPs so as to ensure that they are full time in the service of Parliament. • Compared to other countries, provides generous qualifying period (4 years) and very generous pension benefits to MPs and for judges based on redefined pensionable emoluments which includes allowances contrary to accepted practice and law for pension plans in this jurisdiction, which limits the maximum benefit to two-thirds of final salary. • Distorts the compensation management of persons within the purview of the SRC and will make the proposed job evaluation exercise even more complicated and drawn out. • Distorts the relationship between current salaries and pensions of judges and actually creates a perverse incentive for sitting judges to retire early. • Engenders inequity between MPs and other public officials who are unable to adjust their own pensions and could foment strife between these groups • May have a perverse demonstration effect on private sector pensions and even base compensation • Raises constitutional issues in respect of the role of the SRC vis a vis Parliament
Posted on: Fri, 11 Jul 2014 17:06:05 +0000
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