January 20, 2004
As part of a speech to the Calgary Chamber of Commerce this morning, John MacNaughton, President and CEO of the CPP Investment Board, called on the financial services industry to help dispel the myth that the CPP will run out of money.
“Many Canadians are unaware that we are now building the Canada Pension Plan’s reserve assets,” said MacNaughton. “Given the high profile news of the Canada Pension Plan’s crisis back in 1996, perhaps it isn’t surprising that many Canadians are still concerned that the CPP won’t be there when they retire.”
The CPP is a national pension scheme intended as a building block of the total retirement income of Canadians that includes employer-sponsored pensions and registered retirement savings. “Today I am calling on the financial services industry to help us dispel the unsettling myth that the CPP won’t be there for Canadians,” said MacNaughton. “As financial planners and investment advisors to millions of Canadians they’re ideally positioned to deliver this important message.” ”The question I am asked most frequently is: ‘Will the money be there when I retire?’ The answer is yes, the money will be there,” said MacNaughton. Here are some reasons why the CPP will be around:
• The CPP was reformed in 1997 to stave off a funding crisis.
• The Chief Actuary of Canada, who reviews the health of the CPP every three years, said in his 2000 report that CPP, as currently constituted, is sound for at least 75 years.
• The reserve fund of the CPP has grown from $36.4 billion in 1997 to $64.4 billion today, and will continue to grow to an estimated $160 billion within a decade. The growth is due to the combination of net contributions and investment income.
• At the current contribution rate, more money will flow into the CPP than is needed to pay pensions for the next 17 to 18 years. This allows the CPP to structure a portfolio better able to generate increased returns than a pension fund that needs income today to pay pension benefits. The growing long-term value of this portfolio will help to pay future CPP benefits.
In his speech entitled, “The Challenge of Investing CPP Assets,” MacNaughton underscored the CPP Investment Board’s arms-length relationship to governments:
• The CPP reserve fund is segregated from general government revenue.
• The CPP Investment Board is independent of governments but accountable to Parliament and belongs to 16 million Canadians through the promise of future pensions.
• Legislation gives the CPP Investment Board the power to reinforce a buffer between governments and the investment professionals. The directors appoint the CEO and approve major policies, free of any political involvement.
• The CPP Investment Board professionals are prudently managing CPP assets to maximize returns without undue risk. They continue to diversify the fund from government bonds to include publicly traded companies, private equity, real estate, venture capital and, most recently, infrastructure.
MacNaughton also said the CPP Investment Board will continue to use its influence as one of the largest shareholders in Canada to encourage good governance practices by corporations. The speech to the Calgary Chamber of Commerce is available from the CPP Investment Board website, www.cppib.ca CPP Investment Board 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 and real estate 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 Canada Pension 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 more information on the CPP Investment Board, visit www.cppib.ca.
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