October 29, 2002
Despite recent corporate scandals and the decline in stock prices for the third consecutive year, Canadians believe that investing a portion of Canada Pension Plan assets in the stock market still makes sense over the long term, according to a recent public opinion survey by EKOS Research Associates.
The survey was taken between September 3 and 13, before the recent market rebound. 1,526 Canadians were asked to agree or disagree with the statement: “Although there may be occasional short-term losses if CPP assets were invested in stock markets, it wouldn’t bother me because the gains will more than compensate over the next 20 years.” Forty-six percent agreed with the statement, 29% disagreed and 25% had no opinion. The findings were unchanged from a similar survey in March, 2002, despite the deterioration in equities since then.
The federal chief actuary has estimated that contributions by Canadian workers and their employers will be more than sufficient to pay CPP benefits for the next 20 years. After that, investment income will be required to help pay CPP benefits.
Canadians believe (55%) that “someone who invests in stock markets at a time when they are performing poorly stands a good chance of making money because markets will recover over the long term.” Only 19% disagreed. (This question was not asked in March).
The EKOS surveys were commissioned by the CPP Investment Board to help gauge public confidence in investing CPP funds in equities. The surveys are posted at www.cppib.ca. The September survey largely updated the March survey to determine the impact of market declines and corporate scandals on public confidence. Overall confidence in long-term market performance remained strong and generally unaffected by recent events.
The survey found that 65% of Canadians were “okay with investing a portion of CPP assets in the stock market if I knew that the rest of the assets were invested in other kinds of investments like government bonds.” This support was unchanged from March. As of June 30, 2002, the $56 billion in CPP assets consisted of 57% government bonds, 31% equities and 12% cash reserves.
Another question found that only 31% of those surveyed (32% in March) are comfortable with up to half of CPP assets being invested in equities. (Public sector pension funds in Canada invest about 65% in equities).
The survey detected softer support for equity investing when it is linked to CPP benefits. Respondents were asked if it was “a bad idea to invest a portion of CPP assets in the stock market because the CPP could lose a lot of money and not be able to pay future pension benefits.” Forty-three percent agreed it was a bad idea (40% in March), while 35% did not agree, (39% in March).
Canadians appear to be comfortable with market volatility. Asked to comment on the statement “stock markets go up and down all the time, but over the long run they produce good returns for investors,” 53% agreed (56% in March) and 17% disagreed (15% in March).
The survey found that Canadians have a good understanding of what drives short-term and long-term market performance. They rated market crises as the most important short-term driver, followed by the ethical behavior of corporate executives and corporate earnings. Over the long term they considered the overall health of the economy and corporate earnings the most important factors.
Forty three percent said that corporate scandals have reduced their confidence in stock markets to a high extent and 22% to a low extent. Significantly, 66% agreed that “the crisis created by the recent corporate standards will come to pass and stock markets will be fine over the long term”. Only 14% disagreed with the statement.
Overall, 49% of Canadians are confident in the current health of the Canadian economy, with 19% considering it poor and 31% considering it neither good nor bad. This was a more positive assessment than in March. An almost equal number (46%) feel good about their personal finances, with only 20% rating them as poor, while 56% think their personal finances will improve, 11% will worsen and 31% will remain the same.
Created in December 1997, the CPP Investment Board is a crown corporation that invests funds not needed by the Canada Pension Plan to pay current pensions. Cash flows are invested in equities to balance the bond portfolio owned by the Canada Pension Plan. By increasing the long-term value of funds, the CPP Investment Board will help the Plan to keep its pension promise to Canadians. Located in Toronto, the CPP Investment Board is governed and managed independently of the Canada Pension Plan and at arm’s length from governments.
For further information contact:
John MacNaughton – President and CEO
c/o Lisa Thompson