Pension Reform in Canada

[August1991]

Starting a few years ago, the Canada Pension Plan began to diversify its portfolio beyond government bonds and began to buy shares in Canada and abroad. (Yes, the fund owns shares in WalMart and McDonald's.) This has markedly improved the Canada Pension Plan's asset position.

In fact, the CPP was merely imitating the Quebec Pension Plan (the Caisse de depot) which for many years has diversified its portfolio into corporate bonds and shares.

At the moment, the US Social Security only holds US government bonds. But US Social Security managers are enviously looking at the CPP. They have suggested being allowed to widen their investments as has happened in Canada.

Holding private-sector assets would produce higher returns for Social Security trust funds. It also would smooth the transition of Social Security from a vehicle that finances government debt to an entity that receives payment from the government.

Brookings Paper: Easy to read

The Bush administration has responded that, if the US Social Security were to start investing in the stock market, it would in effect become a mutual fund. Worse, it would be subject to political pressure.

Bush has suggested instead that individuals, if they choose, should have the right to decide who will manage their portion of the social security fund on their behalf.

That makes sense to me.

As to the issue of political interference, the current head of the Caisse de depot is Henri-Paul Rousseau. He replaced Jean-Claude Scraire. Read this..

If Premier Bernard Landry can't get to sleep because he's wondering how his $140 billion dollar pension fund is doing, he doesn't have to go far to find out.

All he has to do is put on his slippers, pad down the hall of his apartment building, take the elevator down a couple floors, and hope a trader is on duty monitoring the overnight money markets at the Caisse de depot et placement du Quebec office.

The Caisse is now worth about $100 billion. Translated into US terms, such a US Social Security fund would be about $4 trillion and dominate world equity markets. Talk about an elephant.

[August1991]

I'm amazed that this OP of mine, posted over two years ago, has had over 300 views but no replies.

[The issue of pensions matters far more to Canadians than nonsense about US conspiracies or aliens - current fads on this forum. If MLF is to survive, it must make a positive contribution to Canada's civil society. Where are the replies?]

From what I can see, CPP contributions rose from 5.85% of ensurable earnings in 1998 to 9.9% in 2004. (These contributions are shared equally by employers and employees.)

These contributions are only made on income up to $40,000.

-----

Pateris, you use the term "sustainable". What do you mean? The CPP does not put contributions into a bank account and then pay them out when people retire.

In fact, the CPP is merely a transfer scheme. We take from Peter to pay Paul. The government does this in myriad ways, not just for pensioners.

I think the federal government should privatize our CPP contributions. What does this mean? Individual Canadians should choose how to place their savings or how to delegate who should decide.

At the moment, the savings of many Canadians are decided by dictatorship. (This is most severe in Quebec.) Dictatorship is rarely good. It is usually bad to put all one's eggs in one basket.

[geoffrey]

I would only have not replied if i had not seen it. Is ignorance an excuse?

Anyways, I agree with your thinking. My corporate pension allows me to choose what funds and what balance I want it invested in (from a limited selection of options). I don't see why the CPP can't operate that way? Just log on to your CPP account and invest the dollars as you wish.

Why not? It makes no sense for someone as young as I am to be invested as conservatively as the CPP invests my money.

[August1991]

It makes no sense for someone as young as I am to be invested as conservatively as the CPP invests my money.

You're looking at this question from your own individual perspective. I'm wondering more.

I'm trying to look at the question from the perspective of society. Is it a good idea to let a small group, even one person, make a decision for millions?

That's what the CPP, Caisse de depot or the Ontario Teacher funds do. Millions of savers have delegated their future to a small group of people. History shows that's dangerous.

In practical terms, these hired-gun, bureaucrat pension managers are now picking winners. Huh?

Teacher's wants to buy Sabia's BCE. Huh?

Just log on to your CPP account and invest the dollars as you wish.

Why not? It makes no sense for someone as young as I am to be invested as conservatively as the CPP invests my money.

Exactly.

This would diversify society's choices.

[August1991]

The Canada Pension Plan's investment team has grown steadily bigger and bolder in the past 18 months, amassing a war chest of $116.6-billion as of March 31 to pay future benefits to Canadian pensioners.

In the past year, the CPP Investment Board, which oversees the pension fund's assets, has added 100 employees. That has boosted its staff by 60 per cent to 260, and another 100 employees should be added again this year, president and CEO David Denison said in an interview.

"This will allow us more flexibility to do additional, active investing and to simultaneously handle more transactions than we are capable of doing right now. We'll also expand our geographic locations. We intend to open an office in Hong Kong and an office in London in the next 12 to 18 months," Mr. Denison said.

Much of the pension fund's bulking up has taken place as it evolves from being a passive investor in funds, stocks and bonds to using a more active investment style. This includes investing in public companies to try to enhance their value, and buying stakes in companies directly through private equity and infrastructure deals.

....

"People who weren't following us closely may not have appreciated the evolution we've been going through, whereas a partner such as KKR ... fully appreciated we had those capabilities and could be a shoulder-to-shoulder partner with them," Mr. Denison said.

G & M

As often happens when someone has easy access to other people's money, this guy is building an empire. In this case however, the danger is greater. These employees are not just sitting in meetings all day and sending emails to each other. We have concentrated alot of power into a few people's hands. These bureaucrats will be picking winners - and bureaucrats are rarely good at doing that.

This CPP monopoly should be broken up and individual Canadians given control over how their pension savings are invested. Concentrating power in the hands of a few has rarely lead to much good.

[Riverwind]

In practical terms, these hired-gun, bureaucrat pension managers are now picking winners. Huh?

Why are people hired by the CPP any different from people hired for private mutual funds? Both are hired to pick winners.

Teacher's wants to buy Sabia's BCE. Huh?

OTPF is a private fund. Are you making that comment to illustrate how private managers are no better than public managers?

This would diversify society's choices.

No one will be able to retire on CPP alone (about $700/month). Private capital will always be a big part of the market. People still have choices.

This CPP monopoly should be broken up and individual Canadians given control over how their pension savings are invested. Concentrating power in the hands of a few has rarely lead to much good.

You should clarify what you mean. What you are really saying is concentrating power in the hands of private firms running mutual funds is good but having the same power in the handles of funds nominally run by the public is some how wrong.

Our economic system will create large pools of money. The rise of private equity firms like KKR and Cereberus are good examples. The CPP fund is simply one of many large pools of equity. I see nothing wrong with it.

BTW - there is no CPP monopoly. It is simply a big player amoung many in the global equity market.

[fellowtraveller]

The Canada Pension Plan's investment team has grown steadily bigger and bolder in the past 18 months, amassing a war chest of $116.6-billion as of March 31 to pay future benefits to Canadian pensioners.

In the past year, the CPP Investment Board, which oversees the pension fund's assets, has added 100 employees. That has boosted its staff by 60 per cent to 260, and another 100 employees should be added again this year, president and CEO David Denison said in an interview.

"This will allow us more flexibility to do additional, active investing and to simultaneously handle more transactions than we are capable of doing right now. We'll also expand our geographic locations. We intend to open an office in Hong Kong and an office in London in the next 12 to 18 months," Mr. Denison said.

Much of the pension fund's bulking up has taken place as it evolves from being a passive investor in funds, stocks and bonds to using a more active investment style. This includes investing in public companies to try to enhance their value, and buying stakes in companies directly through private equity and infrastructure deals.

....

"People who weren't following us closely may not have appreciated the evolution we've been going through, whereas a partner such as KKR ... fully appreciated we had those capabilities and could be a shoulder-to-shoulder partner with them," Mr. Denison said.

G & M

As often happens when someone has easy access to other people's money, this guy is building an empire. In this case however, the danger is greater. These employees are not just sitting in meetings all day and sending emails to each other. We have concentrated alot of power into a few people's hands. These bureaucrats will be picking winners - and bureaucrats are rarely good at doing that.

This CPP monopoly should be broken up and individual Canadians given control over how their pension savings are invested. Concentrating power in the hands of a few has rarely lead to much good.

Why can't we have it both ways?

Why can't one citizen opt to have their pension account money handled by a central agency, and another opt to handle the investment options themselves, as is done with self-directed RRSPs now?

The key thing is that CPP-style contributions remain mandatory, or very few people will choose the longterm, lifetime investment needed to not end up a ward of the state.

[August1991]

Why are people hired by the CPP any different from people hired for private mutual funds? Both are hired to pick winners.

...

OTPF is a private fund. Are you making that comment to illustrate how private managers are no better than public managers?

This is the core of your argument, Riverwind.

There is a fundamental difference between the investment managers at Teachers or the CPP and those at a mutual fund or even a large Canadian bank.

In simple terms, if you don't like the strategy of a mutual fund, you can choose another one. Individual savers decide who will be the investment managers.

In the case of the CPP or Teachers, individual investors have in effect no say over what they do. It's a top-down, command-and-control approach to organization. If an investment manager is incompetent or makes errors, the organization will have to bring this to light and make changes.

Even you choose your personal dentist. You don't take the dentist assigned to by a central office. Yet at present, our investment manager is decided for us.

The Soviet Union is good evidence that a top-down approach does not work well in general. In the case of the CPP, it is frightening because we have concentrated alot of power in a few people's hands and then entrusted them with choices of the future direction of our economy.

In the past, this wasn't a large problem because pension contributions were smaller, the funds were smaller and the CPP largely invested in government bonds. Recently however, as the Globe article makes plain, the CPP has adopted an aggressive strategy. The CPP is in the game of picking winners.

The experience of the Caisse de depot has not been good. Right now, it is doing well because equity markets are doing well. But the Caisse is leveraged to get those returns and it has gone heavily into real estate. Real estate is the seductive siren of investment managers.

I'll agree that if (or rather when) the investors at Teachers make a serious mistake, that will be primarily a problem for Ontario retired teachers.

But my main point is about concentrating power in a few people's hands. It is generally better to diversify, particularly when markets exist for collective decisions through individual choice.

Our mandated pension contributions are another form of tax. I'm inclined to prefer a small, pay-as-you go system that ultimately could be financed out of general tax revenues.

[Riverwind]

In the case of the CPP or Teachers, individual investors have in effect no say over what they do. It's a top-down, command-and-control approach to organization.

The same is true of all defined benefit pension plans. Contributions are mandatory and the contributors cannot take their money and shop around. It sounds like you have a problem with defined benefit pension plans. I don't - I think they have their place any anyone's retirement plan. I won't be able to retire on my CPP income but having a portion of my savings in defined benefit plan makes a lot of sense to me. It also makes sense from a public policy perspective because a lot of people are not able to invest their money on their own and would end up needing even more government support.

But my main point is about concentrating power in a few people's hands. It is generally better to diversify, particularly when markets exist for collective decisions through individual choice.

We have a world where private pools of capital are buying up many profitable assets and shutting individual investors out. This trend is simply going to get worse and power will be concentrated in the hands of a few oligarchs. If you are really worried about the concentration off financial power then you should be worried about those people. Government pension plans are indirectly accountable to the people.

[August1991]

The same is true of all defined benefit pension plans. Contributions are mandatory and the contributors cannot take their money and shop around. It sounds like you have a problem with defined benefit pension plans.

Wrong, and wrong.

There are many mandatory but self-administered pension schemes. It is just such a decentralized decision-making system that I am advocating. And no, I have no problem with defined benefit pension schemes. I happen to think however that the CPP should become more like the OAP.

We have a world where private pools of capital are buying up many profitable assets and shutting individual investors out. This trend is simply going to get worse and power will be concentrated in the hands of a few oligarchs.

That's Marxist nonsense and it shows a serious misunderstanding of financial markets. Individual investors are not shut out of financial markets - how could they be? Anybody can buy and sell paper.

It is the choice of paper that matters. When these decisions are concentrated in a few people's hands, bad things usually happen.

As I noted in the OP, if the US were to follow what is happening in Canada, a few thousand people in a single bureaucracy in Washington would manage a portfolio of $4 trillion and dominate world equity markets. They in effect would become Gosplan.

We might be able to get away with this for awhile in Canada because we are a small player and piggy back off prices set in world financial markets. But Teachers, the Caisse and the CPP dominate Canadian financial markets and as I've said, concentrating power in a few hands and then giving at most weak bureaucratic oversight to that power has historically been a recipe for catastrophic disaster.

If you are really worried about the concentration off financial power then you should be worried about those people. Government pension plans are indirectly accountable to the people.

In private schemes, savers typically choose who will manage their savings or they do this themselves. The oversight is direct. Decisions are diffused.

"Indirectly accountable to the people". I love that phrase.

Riverwind, would you agree to put all your RRSPs into a blind trust? How about a blind trust of my choosing? Now then, imagine that all Canadians put all their RRSPs into a single blind trust. Do you think this would be good for the long term prospects of the Canadian economy?

[hiti]

The CPP was started around 40 some years ago. It needs to run for at least another 100 years so people have the chance to build up their own private pensions and not rely upon government pensions upon retirement as so many still do.

Our CPP has been fixed and set up to serve Canadians for generations to come. Leave it alone.

[August1991]

The CPP was started around 40 some years ago. It needs to run for at least another 100 years so people have the chance to build up their own private pensions and not rely upon government pensions upon retirement as so many still do.

And for the first 30 years, it was mostly pay-as-you-go and any surplus was put into government bonds. In the past few years, things have changed - as the G & M article above makes plain.

I am not advocating that we get rid of a government pension scheme - whether now or in a 100 years. Frankly, I think we'll always have need for government pensions since they are part and parcel of living in a civilized society.

Rather, I dispute the way the CPP is now organized and the kinds of investment decisions it is now making.

Our CPP has been fixed and set up to serve Canadians for generations to come. Leave it alone.

Your blind faith is quaint but surprising. Do you manage your own personal finances the same way?

For example, would you hand over the ownership of your house to a government bureaucrat and let him decide whether to maintain it or not or whether to sell it and live off the interest? Now then, what if all Canadians handed over ownership of their house to the same bureaucrat?

You should also know that CPP contributions amount to a regressive tax. Contributions do not apply on income above $40,000. Would you agree to an income tax that is the same dollar amount for people earning $40,000 as for those earning $400,000?

[Riverwind]

There are many mandatory but self-administered pension schemes.

All defined benefit plans require membership in a group to participate. Individual members have no control over the decisions made by the plan administrators - especially with larger groups. Individual participants hand their savings over to a blind trust but in return they get a guaranteed amount of benefits. This is a reasonable trade-off.

Individual investors are not shut out of financial markets - how could they be? Anybody can buy and sell paper.

I have been forced to sell my stocks in profitable companies several times in the last few years. In many cases I cannot purchase stock in the buying company because it is not publicly listed or it is listed on a foreign (non-US) exchange. I am forced to invest in less profitable companies that the big players don't want. I am getting shut out of the market by big money. This trend should be a much bigger concern than the CPP investment fund.

As I noted in the OP, if the US were to follow what is happening in Canada, a few thousand people in a single bureaucracy in Washington would manage a portfolio of $4 trillion and dominate world equity markets. They in effect would become Gosplan.

It would be an elephant. OTOH, it would be an effective counter weight to the huge pools of capital that are being amassed by the Russians and the Chinese. In the long run Americans would benefit.

Riverwind, would you agree to put all your RRSPs into a blind trust? How about a blind trust of my choosing. Now then, imagine that all Canadians put all their RRSPs into a single blind trust. Do you think this would be good for the long term prospects of the Canadian economy?

You are grossly exaggerating the situation. Canadians still can invest in RRSPs that they control - CPP contributions do not prevent people from saving on their own. However, these mandatory contributions do give people a guaranteed benefit that they could not possibly get if they relied on their own savings.

[geoffrey]

All defined benefit plans require membership in a group to participate. Individual members have no control over the decisions made by the plan administrators - especially with larger groups. Individual participants hand their savings over to a blind trust but in return they get a guaranteed amount of benefits. This is a reasonable trade-off.

Defined benefit is the problem. What we have is a defined benefit, defined contribution scheme. That leaves the future generation being screwed in exchange for the current retiring group.

Defineded contribution sure, and then you get paid out what you've earned. Unfortunately, that's not how it works.

Our group plan at work allows you to pick and choose your investments, and it's a medium sized company. Surely there is enough block power in an organization 10,000 times the size to see the transaction savings of having people invest their own dollars.

Plus people might learn something. Like those that want to tax the hell out of all business, they'll think twice when they get their dividend cheques.

I have been forced to sell my stocks in profitable companies several times in the last few years. In many cases I cannot purchase stock in the buying company because it is not publicly listed or it is listed on a foreign (non-US) exchange. I am forced to invest in less profitable companies that the big players don't want. I am getting shut out of the market by big money. This trend should be a much bigger concern than the CPP investment fund.

Private equity has it's own risks, and that's why they go for the big gainers. Your right of course though, and the biggest factor in all the private equity money eatting everything now is the tax on income trusts. But this was still a great idea... no??? :S

CPP contributions do not prevent people from saving on their own.

I disagree. It prevents me from saving roughly 4.95% extra a month (I make more than the top limit though, so less). If I were still a contractor, I'd be paying 10% of my earnings to CPP. And it's increasing every year. All for a pitance upon my retirement? I'll have my money, thanks.

[Riverwind]

Defined benefit is the problem. What we have is a defined benefit, defined contribution scheme. That leaves the future generation being screwed in exchange for the current retiring group.

The CPP did work that way in the past. It is supposed to be completely self funded right now.

Private equity has it's own risks, and that's why they go for the big gainers. Your right of course though, and the biggest factor in all the private equity money eatting everything now is the tax on income trusts. But this was still a great idea... no??? :S

The companies in question were not income trusts nor were they ever likely to be trusts. Private equity would be making these purchases no matter what happened to trusts.

I disagree. It prevents me from saving roughly 4.95% extra a month (I make more than the top limit though, so less). If I were still a contractor, I'd be paying 10% of my earnings to CPP. And it's increasing every year. All for a pitance upon my retirement? I'll have my money, thanks.

CPP contributions are tax deductable so your percentages are not accurate. I will agree that people who are comfortable with investing would likely get a better return than what the CPP will pay. However, I have learn to appreciate the value of a defined benefit plan as I get older. I would not want to have all of my savings in a defined benefit plan but I don't mind contributing 2000-3000/per year after tax.

Many people forget that the CPP is not simply a pension plan - it also offers disability benefits. Disability insurance is virtually impossible to get unless you work for a large company. The CPP fills an important gap.

[geoffrey]

The companies in question were not income trusts nor were they ever likely to be trusts. Private equity would be making these purchases no matter what happened to trusts.

BCE, Bell, TransAlta. 3 big chunks of public cash flow giants that we're going to lose to the private sector. TransAlta has Trust units (complex), and the other two were considering. Their combined market cap is much bigger than whatever you were looking at, guarnteed.

Many people forget that the CPP is not simply a pension plan - it also offers disability benefits. Disability insurance is virtually impossible to get unless you work for a large company. The CPP fills an important gap.

Should I be subsidizing this? Is it worth 10% of my income as a self-employed person? CPP doesn't pay when I collide with another auto, or when someone slips on my sidewalk.

[Riverwind]

Should I be subsidizing this? Is it worth 10% of my income as a self-employed person? CPP doesn't pay when I collide with another auto, or when someone slips on my sidewalk.

If something happened to you that prevented you from working then you can collect benefits. You are susidizing the benefit plan that your employer offers you as well. Company benefits plans can cost $200/month/employee. Is it really worth it to you or do you think you could do better taking that $200+/month and buying your own insurance?

[geoffrey]

If something happened to you that prevented you from working then you can collect benefits. You are susidizing the benefit plan that your employer offers you as well. Company benefits plans can cost $200/month/employee. Is it really worth it to you or do you think you could do better taking that $200+/month and buying your own insurance?

I have STD and LTD through my company, I'm not sure what the exact costs are but I can certainly find an average (not that I'd be able to post it here unfortunately). I figure your nearly right on the $200/month for most of the benefits.

Sure, sounds like a good deal to me. I actually have the option with my employer to take the money instead of the benefits (health, dental and all that anyways, I think the STD and LTD are mandatory).

But my question was bigger than whether the government provides value on disability insurance (another question, does it distort the disability insurance market?)... do I have any obligation to fund other's disability because they have chosen to work for an employer that doesn't provide such benefits?

Obviously my employer pays for them (the magical money tree certainly can't be found yet), which means I likely make less because of it. Why should I pay someone's benefits that makes more because their employer doesn't have that additional expense?!

There is a few ways of looking at this that I don't like. Ultimately, it comes down to why the hell is other's personal choices (retirement) my responsibility?

[Riverwind]

Sure, sounds like a good deal to me. I actually have the option with my employer to take the money instead of the benefits (health, dental and all that anyways, I think the STD and LTD are mandatory).

They would have to be. It is virtually impossible to get disability insurance as an individual or as part of a voluntary plan. Insurance companies only offer it to groups of people where participation is mandatory. You are funding the disability insurance for your co-workers whether you like it or not. CPP is no different. If you are disabled you are entitled to collect benefits but you are compelled to contribute. That is the nature of all group insurance policies. It is not a problem caused by government regulation.

Why should I pay someone's benefits that makes more because their employer doesn't have that additional expense?!

You can collect CPP disability in addition to any private plan. You are are not paying for someone else's benefits - you are paying for your own benefits.

[August1991]

Well, to my knowledge, no private pension scheme has the power to impose taxes.

Look Dobbin, the government by the simple expedient of raising income taxes can reduce pension payouts - and don't doubt for a second that a future government won't consider that option when the boomers start to retire. For example, why do seniors get a larger personal exemption than others anyway?

And maybe we should take this discussion to another thread.

Private pension plans do and can raise rates, reduce payments or sometimes wrap up their plans. More private plans have funding problems than the CPP.

As for your boomers argument, that is the reason the CPP was changed the way it was. It is now meeting the objectives that it needs to make to provide pensions for the next 75 years. I'm not sure what exemption for seniors you are referring to. On their CPP?

I have no problems taking it to another thread. My point in bringing up CPP was that it was a huge issue prior to 1997 and one that required a lot of discussion. It could have been political dynamite but it was handled decently by all parties involved. You seem to think it still an issue but I can find no where in either business or government where it is being talked about in terms of being a problem.

I believe that the healthcare situation will require an equal amount of thought. As you say, it is a far more complicated area of responsibility but it is not beyond the pale in terms of solutions.

Private pensions can only change terms within the accepted contract, otherwise they are subject to a civil suit.

Government pensions are entirely different for the simple reason that governments have the power to tax. A government doesn't have to change the pension regime. It only has to change taxes and the effect is the same. For example, Mulroney decided to clawback pensioner benefits by changing the tax system.

More pointedly, do you think the age exemption will continue forever, Dobbin? When it becomes politically palatable, don't you think a Finance Minister will announce that seniors will get the same personbal exemption as everyone else? And when that day happens, the CPP will have a new regime.

As I noted elsewhere, Canada the country will never retire and so Canada the country has no need for a pension fund. The confusion here is between group behaviour and individual behaviour.

And BTW, pension discussions are political correctness to the nth degree - at least now. There are a bunch of boomers preparing to retire. So of course Chretien's Liberals could create a brou-ha-ha a few years ago and in effect raise taxes. You won't dissuade me from that opinion.

-----

While I'm on this critical topic, here's a good link (G&M, Yakabuski) about what happens when governments create a fund and then let bureaucrats try to choose winners:

For anyone who's followed the Caisse's history, from its creation in 1965 as an economic development tool of the Quebec government, the institution's transformation under Mr. Rousseau is mind-blowing.

There was a time when virtually no major, publicly traded company headquartered in Quebec did not count the Caisse as its largest non-controlling (ie. non-family) shareholder. Indeed, for years the fund had more BCE shares than anyone else, with the Caisse never holding less than 5 per cent of the stock in the eighties.

Ditto for the once-Montreal-based Canadian Pacific Ltd., of which the Caisse amassed almost 10 per cent in 1982. Also in the 1980s, the Caisse held 7 per cent of Alcan Inc., 30 per cent of Provigo Inc. and 13 per cent of Dominion Textile Inc. Not even Paul Desmarais escaped the Caisse's presence: The fund held 12 per cent of Power Financial Corp.

There wasn't a Québécois entrepreneur that came to the Caisse with an idea - no matter how half-baked - that it did not back. Michel Gaucher took over Steinberg Inc., Pierre Péladeau swallowed Robert Maxwell's U.S. printing operations, and Charles Sirois bought, well, pretty much everything with the Caisse as financier.

Even under Mr. Rousseau's immediate predecessor, Jean-Claude Scraire, the Caisse backed Mr. Péladeau's scion, Pierre Karl, in his 2000 takeover of cable giant Vidéotron Ltée, becoming a 45-per-cent owner in Quebecor Media Inc.

Today, though, no Quebec entrepreneur can expect automatic sympathy from the Caisse. The fund doesn't hold a single share in Stéphane Crétier's Garda World Security Corp., for instance. Not even National Bank of Canada, the only francophone-run member of the Big Six, counts the Caisse as a shareholder. Nor does Montreal-based Abitibi-Consolidated Inc., meaning the fund has no say in the proposed merger of Quebec's biggest forest products company with U.S.-based Bowater Inc. The Caisse no longer has much weight to throw at Alcan, either. The fund's holding in the Montreal-based aluminum giant, currently the target of a hostile bid by Alcoa, stood at an inconsequential 1.5 per cent at Dec. 31.

This is still not news in Quebec. Rousseau's reputation is such that he can do this. But for how long? What happens when his portfolio no longer performs so well? The Caisse by the way has leveraged its performance so it is in a risky position, and it has gotten heavily into real estate - the cemetery of speculators and no place for a bureaucrat.

Dobbin, if you look above in this thread, you'll realize that pensions at the level of a country make no sense - even though they make perfect sense for an individual.

In a family, parents give up much to raise young children. Older, children give up much to care for their older parents. For the family as a whole, the balance sheet doesn't change. Nothing changes except the direction of care. At most, perhaps there is the hope that the family in the future will do better - but this has nothing to do with the balance sheet between generations.

And thinking more about this, parents gain much when they raise children, and children gain much when they care for their elderly parents.

In such a context, it was ludicrous for the Chretien/Martin Liberals to start a fear crusade about pensions and in effect raise taxes. Does it make sense to let bureaucrats pick the winners?

Individual Canadians need a pension fund but Canada as a whole has no need for such a thing. Canada will never retire. Canada need only pick winners, and bureaucrats are bad at doing that.

[Riverwind]

Government pensions are entirely different for the simple reason that governments have the power to tax. A government doesn't have to change the pension regime. It only has to change taxes and the effect is the same. For example, Mulroney decided to clawback pensioner benefits by changing the tax system.

You are mixing things up. Mulroney tried to make changes to OAS - not CPP. The two programs are completely different. CPP income is taxed as any other pension income and will always be that way.

The CPP is a defined benefit pension plan - something that almost nobody has access today through their employer. The CPP is a pension of last resort which makes it an important part of the retirement plan for all Canadians.

You seem to think that the majority of people are able to make sensible investment decisions. Evidence suggests that many people end up handing their assets over to financial planners that are more interested in generating commisions than ensuring the comfortable retirement of their clients. It is this group of people that need a mandatory defined benefit plan.

[August1991]

You are mixing things up. Mulroney tried to make changes to OAS - not CPP. The two programs are completely different. CPP income is taxed as any other pension income and will always be that way.

OAS, CPP. Who cares. The effect is that the government can arbitrarily change benefits - money in the pockets of pensioners.

You seem to think that the majority of people are able to make sensible investment decisions. Evidence suggests that many people end up handing their assets over to financial planners that are more interested in generating commisions than ensuring the comfortable retirement of their clients. It is this group of people that need a mandatory defined benefit plan.

Riverwind, I don't dispute that people should be encouraged or even forced to save. But you raise are far more serious issue. Do you think a bureaucrat will choose better than an advisor of your choice? Would you entrust the sale of your house to a bureaucrat chosen for you, or to a real estate agent that you choose?

More broadly, what would happen to Canada's real estate market if homeownership were organized by bureaucrats in Ottawa? Would Canada be a successful society?

Concentrating power in a few people's hands rarely leads to much good.

[Riverwind]

Do you think a bureaucrat will choose better than an advisor of your choice?

Why would a qualified pension fund manager hired by the government be any different from one hired by the private sector?

My experience with financial planners has been universally bad - I have found out that their advice is primarily motivated by a desire to generate commissions and were more than willing to recommend completely inappropriate funds or investment strategies for myself and family members. Given my experience I don't see how any government run plan could be worse.

That is why I think handing everything over to the private sector would be a dumb idea. It would be like asking the foxes to guard the hens.

Would you entrust the sale of your house to a bureaucrat chosen for you, or to a real estate agent that you choose?

Neither - I would handle it myself but that is me.

Concentrating power in a few people's hands rarely leads to much good.

We have that in the financial markets today. The average Canadian investor is getting shut out of the equity market by foreign companies and private equity funds. I like the idea of having a fund that represents the interest of all Canadian workers operating in the market. It provides balance.

[jdobbin]

Private pensions can only change terms within the accepted contract, otherwise they are subject to a civil suit.

Government pensions are entirely different for the simple reason that governments have the power to tax. A government doesn't have to change the pension regime. It only has to change taxes and the effect is the same. For example, Mulroney decided to clawback pensioner benefits by changing the tax system.

More pointedly, do you think the age exemption will continue forever, Dobbin? When it becomes politically palatable, don't you think a Finance Minister will announce that seniors will get the same personbal exemption as everyone else? And when that day happens, the CPP will have a new regime.

As I noted elsewhere, Canada the country will never retire and so Canada the country has no need for a pension fund. The confusion here is between group behaviour and individual behaviour.

And BTW, pension discussions are political correctness to the nth degree - at least now. There are a bunch of boomers preparing to retire. So of course Chretien's Liberals could create a brou-ha-ha a few years ago and in effect raise taxes. You won't dissuade me from that opinion.

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While I'm on this critical topic, here's a good link

This is still not news in Quebec. Rousseau's reputation is such that he can do this. But for how long? What happens when his portfolio no longer performs so well? The Caisse by the way has leveraged its performance so it is in a risky position, and it has gotten heavily into real estate - the cemetery of speculators and no place for a bureaucrat.

Dobbin, if you look above in this thread, you'll realize that pensions at the level of a country make no sense - even though they make perfect sense for an individual.

In a family, parents give up much to raise young children. Older, children give up much to care for their older parents. For the family as a whole, the balance sheet doesn't change. Nothing changes except the direction of care. At most, perhaps there is the hope that the family in the future will do better - but this has nothing to do with the balance sheet between generations.

And thinking more about this, parents gain much when they raise children, and children gain much when they care for their elderly parents.

In such a context, it was ludicrous for the Chretien/Martin Liberals to start a fear crusade about pensions and in effect raise taxes. Does it make sense to let bureaucrats pick the winners?

Individual Canadians need a pension fund but Canada as a whole has no need for such a thing. Canada will never retire. Canada need only pick winners, and bureaucrats are bad at doing that.

You'll have to show me a citation that private pensions cannot change the terms of the provisions of their pensions. It seems to me that they have. Companies declare bankruptcy as a strategy to dump their pensions.

I think you've stated it quite honestly. It is your opinion that Chretien Liberals made an issue of an underfunded CPP and were the driving force for change. In fact, the driving force came from outside government and eventually *all* of the House of Commons responded accordingly.

You keep mentioning the issue of baby boomers. This is why changes were made to CPP.

Clawbacks made by Mulroney are based on income.

As far as your Globe article, are you complaining that the Quebec Pension Plan is well run? Yikes! Pension fund managers in Quebec and Canada are doing quite well and have been doing well for a very long time.

Your arguments over the CPP are yours and yours alone.

[jdobbin]

OAS, CPP. Who cares. The effect is that the government can arbitrarily change benefits - money in the pockets of pensioners.

There is a big difference between OAS and CPP.

The government can change the value of your benefits even when they are privately held. They can tax them, change the interest rates, lower or increase the value of the dollar.

Next, you'll be questioning the need for a central bank and say that bureaucrats should not determine interest rates. Maybe next you'll be saying that governments shouldn't be printing money.