Ombudsman - Updates

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October 26, 2005

The Honourable William Graham, P.C., Q.C., M.P.
Minister of National Defence
National Defence Headquarters
Major-General George R. Pearkes Building
13th floor, North Tower
101 Colonel By Drive
Ottawa, Ontario
K1A 0K2

Dear Minister Graham:

I am writing with respect to the Special Report entitled Unfair Deductions From SISIP Payments to Former CF Members. As you may recall, my predecessor provided this report to former National Defence Minister John McCallum on August 27, 2003. On October 8, 2003, Minister McCallum wrote to the former Ombudsman, commenting that the report was “thoughtful and timely” and advising that he agreed with all of the recommendations it contained. The report was made public on October 30, 2003. On November 4, 2003, the House of Commons Standing Committee on National Defence and Veterans Affairs (SCONDVA) unanimously passed a motion imploring “the Defence Minister and government to accept and enact the recommendations forthwith.”

While three of the report’s recommendations have been implemented, two remain outstanding. These concern the offsetting (deduction) of Veterans Affairs Canada (VAC) disability pensions awarded under the Pension Act, awarded as compensation for a disability resulting from military duty, from the amount paid out by SISIP Long Term Disability (LTD) as monthly income replacement benefits.

It might be useful to describe some of the rules, terms and conditions relevant to these recommendations.

The SISIP LTD plan guarantees CF members 75% of their previous salaries for up to two years if they are released, in particular, because of a service-related disability. Payments can continue to age 65 if the member remains disabled.

However, SISIP LTD does not necessarily pay the whole 75% itself; under the plan, any other source of income a member receives is taken into account and offset from the amount SISIP pays directly.

VAC disability pensions, even though they are not considered income but rather disability benefits aimed at compensating CF members for injuries suffered in the line of duty, are considered a source of income under the SISIP LTD formula. Therefore, they are taken into consideration when SISIP LTD determines how much it will pay out to disabled former CF members in income replacement benefits.

The Ombudsman’s report recommended that since VAC disability pensions are not income, they should not be considered as income when calculating SISIP LTD benefits. The report also recommended that individuals who had previously had their SISIP LTD benefits reduced be reimbursed retroactive to October 27, 2000. (This is the date on which all serving CF members became entitled to collect VAC disability pensions while still serving, regardless of where their injury occurred. Before that date, only those injured in a special duty area were entitled to collect the tax-free disability benefit while still serving and collecting a salary.)

Following my meeting with you on September 27, 2005, our General Counsel, Mary McFadyen, met with your Special Assistant, Brian O’Neil on October 5, 2005, taking the opportunity to explain why we think these recommendations should be implemented, and pointing out the inherent unfairness in considering a pension intended to compensate for a disability as a source of income deductible from SISIP LTD payments.

It is important to emphasize that the new Veterans Charter may correct this inequity, but this will happen only from the date of its coming into force (possibly April 2006) onward; my understanding is that the Charter will not have any retroactive effect. This means that former members not falling under the new Charter (i.e., those currently in the system and any others entering the system between now and the coming into force of the Charter) will continue to be subject to the rules under examination here. In other words, those who are collecting SISIP LTD payments and receiving VAC disability benefits under the Pension Act will continue to have their SISIP LTD payments reduced by the VAC disability benefits they receive.

To illustrate why I believe this is fundamentally unfair, I would like to use the following hypothetical examples.

Let us examine the situation of two Master Corporals serving in the same Army unit, both having eight years of service and both being injured in the same incident (before the coming into force of the Charter).

MCpl A suffers injuries that leave him permanently disabled, but the disability is not severe enough to prevent him from continuing to serve in the Regular Force. Let us assume he was assessed at suffering from a 20% incapacity, which results in a monthly VAC pension of approximately $400.00. This is a pension which, normally, he would receive tax-free for the rest of his life. Assume further that this member continues to serve for another twenty-five years, and eventually retires as a Master Warrant Officer. On retirement, he will be entitled to a full (superannuation) pension based, of course, on his salary in his last five years of service at a higher rank than when he was injured.

According to the regime now in place, this member will receive his VAC monthly pension in addition to his Regular Force pay from the time of his injury to the time of his retirement, and, when he retires, he will receive it in addition to his superannuation pension. In other words, he will always receive his (tax-free) VAC pension in addition to his other income.

Let’s now turn to MCpl B who was much less lucky. His injury was much more serious. In fact, it was so serious that he was released from the CF as medically unfit to serve. He applied for a VAC pension and was assessed at 70% incapacity. This entitles him to a VAC pension of approximately $1400.00 per month (assuming he was single and had no children). Let us examine his situation in more detail:

he lost his job;
his physical impairment is so serious that the likelihood of his finding a civilian job may be extremely limited;
because he had only eight years of service, he is not entitled to (superannuation) pension payments;
under SISIP LTD his income will, upon release from the CF, be reduced to 75% of his regular force salary; and
he will not be able to collect his VAC pension in addition to his SISIP LTD benefits; on the contrary, the value of that pension will be offset from his SISIP payments.

The two examples I have just used – and I believe they are not farfetched – demonstrate why, in my view, there is a fundamental element of unfairness in the present system which leads to real and serious inequities. It is this very unfairness that the two recommendations that have not been implemented are meant to redress.

I believe that a strong case can be made that VAC pension payments should not be considered as income replacement as such, but rather as compensation for the consequences flowing from disabilities suffered (e.g., loss of enjoyment of life, loss of career opportunities, continuing pain and suffering, etc.).

Incidentally, I presume that the changes made in 2000 to allow Regular Force members to collect their regular pay and their VAC pensions were based on a similar rationale, i.e., that the VAC disability payments are not income replacement but rather that they are intended, as I just indicated, to act as compensation for losses other than losses of income.

If this is correct, and if one assumes that the primary purpose of SISIP LTD is to act as income replacement, then it seems to me that it would be logical – indeed, imperative – that a change should be made to prevent VAC pension payments from being offset from SISIP LTD benefits. Otherwise, the system will only be seen as condoning treatment that is significantly unfair and inequitable to those who, like MCpl B, are most disabled and who suffer most.

Because the situations that soldiers like MCpl B find themselves in result directly from their millitary service, from their service to their country, I believe they deserve better. They ought to be treated with care, compassion and generosity. They ought to be treated in a manner that is substantially similar to that of soldiers who are able to continue serving their country, in spite of the injuries they have suffered.

Given that this point was raised when we met, I would also add that, during the Office’s investigation of this matter, SISIP President, Pierre Lemay, advised us that removing Pension Act disability payments from the formula for determining SISIP LTD payments would cost approximately $5 million per year. We have not independently verified this. I will only say that if Mr Lemay is right, it does not appear that the money required to correct this serious inequity is disproportionate.

I understand that you have received advice from the Department on this matter, and will soon be making a decision. As you know, the role of an Ombudsman does not end after making recommendations. It continues afterwards to ensure that, to the extent possible, those recommendations are acted upon by the organization. As the recommendations in this Report have been accepted by your predecessor, the Honourable John McCallum, and also endorsed by the Honourable David Pratt, when he was Chairman of SCONDVA, I would urge you to consider giving effect to them.

As you know, there is considerable interest in this matter. The Royal Canadian Legion strongly supports these recommendations and we receive constant inquiries from serving and former CF members, as well as from members of Parliament and the public, as to whether or not the recommendations will be implemented.

I believe strongly that this inequity should be corrected. I feel a responsibility to update my constituents on this matter, and given the passage of time, I consider it imperative that I do so at the earliest opportunity. I would therefore suggest this matter be addressed on a priority basis.

I thank you for your thoughtful consideration of these recommendations and I look forward to what I hope will be a positive response from you.

Yours truly,

Yves Côté, Q.C.
Ombudsman

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