June 02, 2008
Chief Actuary of Canada says plan is sustainable throughout 75-year forecast period
HALIFAX, NS (June 2, 2008) Ten years after the fact, almost two-thirds of Canadians are still unaware that the Canada Pension Plan (CPP) has been successfully reformed and is supported by a $123 billion fund designed to help sustain the plan for the long term. In a speech today at the Halifax Chamber of Commerce, CPP Investment Board President and Chief Executive Officer, David Denison, dispelled the myths some Canadians still hold to be true about the CPP and spoke of the five most common questions Canadians have regarding the CPP:
• Will my pension be there for me when I retire?
• Can the Canada Pension Plan Investment Board really make investment decisions independently from government?
• Why invest so much internationally, especially when the Canadian economy is doing better than many other countries?
• Why don’t you just invest in passive, indexed investments, rather than pursue programs such as infrastructure, real estate and private equity?
• What are you doing in the area of responsible investing?
In his speech in Halifax, Mr. Denison explained that the CPP Fund is sound and sustainable for the long term. The Chief Actuary of Canada has stated that the plan is sustainable throughout the 75-year period of his forecast and CPP contributions are expected to exceed annual benefits paid through to the end of 2019, providing a 12-year period before a portion of the investment income is needed to help pay CPP benefits. The Chief Actuary of Canada also estimates that the CPP Fund will grow to approximately $310 billion at the end of that same time period. Canadians are also unaware that the CPP Investment Board is protected by strong legal safeguards. The safeguards are so strong they require the agreement of two thirds of the provinces with two thirds of the population and the federal government to amend legislation or regulations governing the CPP Investment Board. This formula is more stringent than the amending formula of the Constitution of Canada and reflects a high standard of required consensus. “The Canada Pension Plan Investment Board was created with a unique governance model that strikes an effective balance between independence and accountability,” said Mr. Denison. He explained that the ’investment-only‘ mandate and arm’s length status from governments allow the CPP Investment Board to make decisions that are truly independent. Also, as a global investor helping to secure the future pensions of 17 million Canadians for generations and decades, Mr. Denison added the CPP Investment Board will be increasing investments globally over time as a key part of its diversification and risk management strategy. He added that investments in Canada are a large part of the Fund with approximately $65 billion invested at home. Another question some Canadians have posed is whether passive investing is more prudent and effective than active investing. Active management strategies by investment professionals at the CPP Investment Board have delivered more than $5.3 billion in added value above the market-based benchmark over the past two fiscal years. “Our objective is to be a more active, value-added investor seeking opportunities in global markets,” said Mr. Denison. “This strategy plays to our inherent strengths of size and a long investment horizon,” he added.
A final point made by Mr. Denison reflected the steps being taken by the CPP Investment Board in the area of responsible investing. The CPP Investment Board’s Policy on Responsible Investing is the roadmap by which it assesses environmental, social and governance (ESG) factors as they affect the risk and return parameters of underlying investments. This is guided by the belief that responsible corporate behaviour with respect to ESG factors can generally have a positive influence on long-term financial performance. “Our approach is consistent with the United Nations Principles for Responsible Investment which the CPP Investment Board helped formulate,” said Mr. Denison. Mr. Denison’s speech today begins the first leg of a series of public meetings across Canada in June.
About the CPP Investment Board The CPP Investment Board invests the funds not needed by the Canada Pension Plan to pay current benefits on behalf of 17 million Canadian contributors and beneficiaries. In order to build a diversified portfolio of CPP assets, the CPP Investment Board is investing in publicly-traded stocks, private equities, real estate, inflation-linked bonds, infrastructure and fixed income. Based in Toronto, the CPP Investment Board is governed and managed independently of the Canada Pension Plan and at arm’s length from governments. At March 31, 2008 the CPP Fund totaled C$122.7 billion.
For further information contact:
CPP Investment Board