THE CANADIAN PENSION PLAN, WHAT IS BEST FOR THE PENSIONER?
By: Don Thurston (check out his blog @https://www.donthurston.com/
What is the Canada Pension Plan? (CPP)
The Canadian Pension Plan is a savings plan designed to provide income for Canadian pensioners. It is a sovereign plan owned by the Canadian Government. The structure is such that it is immune from any political influence originating from any agency.
How is it run?
Policy direction is provided by a Board of Directors. Members are appointed by a Committee of the Board whose function is to provide sound governance including board appointments selected from provincial representatives and elsewhere. At this time one is from the United Kingdom, one from the United States and the rest from the Canadian Provinces.
The Board sets the policies, an operational structure and overseas management. Offices are maintained in Toronto, London, the United States, Singapore, Hong Kong , Sydney and Mumbai.
Performance is measured by an independent agency. An international and independent firm measures a significant number of global sovereign funds. The CPP’s financial performance is excellent by comparison. CPP’s performance is excellent in all respects. The World Bank reports that the CPP maintains a strong independence and is a world class pension fund.
Presently global economic conditions are causing increasing demand for capital. The CPP’s capital structure includes a substantial savings account in place to provide for pension payments long into the future. Right now the CPP is performing as it should and is set up to meet the needs of retiring Canadians in the future.
Why is it being challenged by Alberta?
Some provinces see the CPP as an opportunity to develop and support industries within Canada and there are some suggestions that the CPP Fund could be viewed as a potential source of funding for these preferred capital projects.
The ALBERTA NEXT initiative’s purpose is to gather public opinion as a basis for introducing new government legislation. One of the topics is the organization of an Alberta Pension Plan. Capital sources would include a portion of the Canadian Pension Plan to be extracted and transferred to an Alberta based organization for financial management and administration. This would allow Alberta a funding source for capital projects within the province.
Another area of great significance is Alberta’s search to reduce the flow of funds out of the Province in a larger than justified amount. Equalization payments and Alberta paying more than other provinces is always in the forefront of any arguments regarding Alberta’s disagreements with Ottawa. Alberta’s government advocates for changes to the CPP as a candidate in this process.
The process of collecting opinions employed by the ALBERTA NEXT panel is through open public discussion and town halls as well as online feedback. Guidelines for citizens to make comments were online in documents and videos available to the participants.
A review of the Alberta Next Panel items pertaining to the CPP follows:
A commitment surfaces early, promising that performance will be equal or better than that provided by the CPP. Further to this, there is no indication as to who is providing the guarantee and what the parameters are.
A second inference states that CPP offices are located in Ottawa and Toronto only. Investments are made with a regional bias and will reflect Eastern Canadian preference.
Further along it mentions investments are made in emission reductions and DEI concerns favouring Eastern Canada which will be eliminated upon the creation of an Alberta Pension Plan.
A notation is made that management costs have ballooned over twenty years of operation, inferring that costs are in excess of what is necessary. Alberta would do it for less money so retirees would get more pension upon retiring.
Establishing an organization such as the APP in Alberta would provide a base to build a larger and better financial organization to develop our own pension plan based on Alberta’s interests. This would create more Alberta Jobs and Develop Alberta Industries. Alberta would get an estimated $140 billion pay out from the CPP.
There are clear indications that an APP would participate in economic ventures that would include direct participation in ventures that are favorable to Alberta’s economy.
Rationalization for APP includes the information that the provincial population is younger and with higher earnings and therefore they deserve a higher pension. There is also reference to a growing economy in the province compared to a decline in Canada.
A significant oversight is there is no suggestion of an actuarial review which quantifies the results of creating a pension plan.
A major driver behind the pension plan initiative is to resist the flow of capital out of the province. All guns are pointed at central Canada in an effort to reduce this from happening. All of these issues are different and need to be discussed separately.
Alberta had LifeWorks (formerly Morneau Schepell) create a document highlighting the positives and negatives for withdrawing from the CPP. It is necessary to determine the origin of this document (who wrote it) and under whose authority was it done.
Alberta deserves more than half CPP assets if it exits program: report.
Alberta pension plan : analysis of costs, benefits, risks and considerations - Open Government
From here mapping the route ahead in order to set an index of what is needed now and well ahead of any actions is needed. The economic health of Alberta, Canada and more specifically the pensioners are at stake.
Quebec Pension Plan
Alberta often points out Quebec’s special treatment and not being a part of the CPP. Quebec opted out of joining the CPP and created a province-based organization for Quebec-based pensioners when the CPP was being formed.
The reasons they did this were politically based, providing influence on what and where a portion of the investments would be made. Specifically, the outcomes would be beneficial to the economics of Quebec.
Summary
In summary the CPP delivers an excellent service in providing about twenty-two million pensioners with excellent service supported with an outstanding financial return. In addition the investments are made without any political motivations. Political motivations are always in flux, subject to the party in power if it was subject to direction by the government. Instead it has skilled asset management without external influence and is flourishing.