June 12, 2006
The strength of the Canada Pension Plan is an increasingly significant advantage for Canadians and for Canada’s place in the global economy, according to David Denison, President and CEO of the CPP Investment Board.
In a speech to the Halifax Chamber of Commerce today, Denison said that advantage is twofold.
Firstly, economic advantages to Canada flow from the fact that Canada has successfully reformed its national pension system, while many other countries in the world are struggling to address the issue of providing retirement benefits for an aging population. According to a recent report by Standard & Poor’s (S&P), the successful Canada Pension Plan reforms of 1997 have helped to position Canada to meet forthcoming demographic shifts. This was one of the important factors that led S&P in its report to name Canada as one of only three nations that will be able to maintain an investment grade debt rating by 2050. In contrast, the US and most countries throughout Western Europe and elsewhere are still struggling with decisions as to how to address the pension requirements of aging populations. Britain, for example, recently announced plans to slowly increase its retirement age to 68 as one of their prescriptions for an ailing national pension plan. Commenting on the crisis in national pension plans afflicting many countries around the world, Denison said, “One way or another the piper will get paid in those countries. In Canada, we have paid up front and rather than be forced to confront a national pension funding crisis at some later date, we can expect to be in a position to invest our political energies and financial resources elsewhere – and that can only be to Canada’s collective benefit.” As well, Canada’s strong national pension system further contributes to its ongoing economic strength given that it will increasingly be an important consideration in attracting foreign investment and the immigration levels needed to help sustain growth in Canada for years to come, Denison said. The second advantage cited by Denison is the security CPP benefits provide to millions of Canadians at a time when traditional employer-sponsored defined benefit pension plans are under strain. Financial regulators and pension experts in Canada have recently sounded the alarm about the growing funding gap for private defined benefit plans in Canada.
Denison concludes, “At a time when many private defined benefit plans are being phased out, restricted to existing participants, or facing growing funding deficits, the security of CPP benefits is of considerable and increasing value to Canadians.” Denison also stated that, unfortunately, the majority of Canadians are unaware that our national pension system has been successfully reformed. For example, only 26 percent of Canadians are even aware that a pool of assets is being built to help sustain future CPP pensions for millions of Canadians. The CPP Investment Board was created in 1997 to manage the CPP fund to help sustain the benefits of the 16 million Canadians who participate in the Canada Pension Plan. Under the management of the investment professionals who operate in the private sector with public sector accountability, the CPP fund has grown to $98 billion and is projected to reach $250 billion within a decade. According to Canada’s Chief Actuary, the CPP fund is sustainable at current contribution rates for at least the next 75 years, which is the length of the study period. The speech made this morning by David Denison begins a series of cross-Canada public meetings to discuss the progress of the CPP fund. These biennial meetings are one way the CPP Investment Board reports to the 16 million Canadians contributors and beneficiaries of the Canada Pension Plan. These sessions will occur in the nine participating provinces of the Canada Pension Plan in June and September of this year.
CPP Investment Board The CPP Investment Board invests the funds not needed by the Canada Pension Plan to pay current benefits. With a mandate from the federal and provincial governments, the CPP Investment Board is accountable to Parliament, to the federal and provincial finance ministers who serve as the stewards of the CPP and reports to 16 million contributors and beneficiaries. Based in Toronto, the CPP Investment Board is governed and managed independently of the Canada Pension Plan and at arm’s length from governments. Its fiscal year is from April 1 to March 31. For more information about the CPP Investment Board, visit www.cppib.ca.
For further information contact:
John Cappelletti, Manager, Communications
CPP Investment Board