Are CPP funds at risk?

[William Ashley]

Not the people I know. Most do not trust the government no matter who is in power. Most people are demanding more openness so that we are aware of what they are up too. In opposition the parties are more than willing to agree with that. As soon as they get in they become secretive.

http://www.thestar.com/News/Canada/article/410909

The government may be bad, but corporations lacking any moral sense of obligation to the people, especially if it ain't their own country's people - are far worse, esepcially when they only see profit, rather than care for the environment and communities around them. While some very much do, there are many corporations who are run by economists rather than humanitarians. That is why we need a strong government, and one with strong democratic foundations. The current system just doesn't offer enough democratic input based on the current population levels of Canada. 130 years ago this may not have been the case as much, today though 1 person per riding is NOT democratic representation. Also the 1 or 2 party federal system with very blunt issues is not the case anymore. There is far more going on, which means there is far more representation needed at some level of government. We need to subsidize our government by getting more people to work with it through democracy. Reduce the strain on the public service by expanding political representation, and voice. So that the people work for their government and they as the government can work for themselves.

We need only look at the abuses of the Europeans during colonization, or America in Latin America over the last century, or even Canadian Companies in South America, or US in their own country with industrial waste dumping into water supplies, or likewise here various practices damaging our water supplies. To know that the government is needed to regulate, and monitor the abuses the ignorant and unknowing corporate world makes, without thinking about the big picture. They have blinders on and are only looking for their own interests, something has to protect the public interest.

Edited October 26, 2008 by William Ashley

[whowhere]

Quebec City's mayor is stating that he may have to raise property taxes to honour pensions for retired municipal employees. Higher levels of governments can do this differently. They can reduce benefits, claw them back through taxes, change CPP contributions or simply change eligibility criteria.

When it comes to a pension, future earnings of the company or pension contributions by current and future employees should be off limits to past employees period. If I was an employee of a company that saw my pension contributions going to pay the pensions of past employees I would be upset. I would be irate that present company income is going to pay those pensions when the company should have been divested of those employees when they left the company. Any company money going to pay prior employee pensions is a fraud to present employee's bonuses, wages and shareholder dividends. Why should current employees and shareholders subsidize pensions out of current company revenues and profits? If I worked at company and I knew this was happening and this was made out to be an excuse why wages and bonuses was reduced I would encourage a class action lawsuit of modern employees with current shareholders against the former employees to get injunction to get them off the company books. A judge can figure out what they are entitled to get while they were employed with company and the state of the pension fund when they retired. Whatever their share of that fund at that time will be established cheque issued to send those former employees on their merry way.

[August1991]

I have started at least one other thread on State pensions: Pension Refrom in Canada

IMV, this question deserves far more attention than it has received. Why do we even have State pension funds? We don't have State medical funds. That is, why does the State have a fund for future pension liabilities but it has no such fund for future medical liabilities?

Should the State have savings? Why? The State is not like a corporation since the State represents the people. The State can tax. A State obligation is an obligation of the country.

Moreover, State pension funds are subject to government interference and control. Is this how we want to take such collective decisions?

----

Anyway, Quebec's State pension fund has been corrupted. By concentrating alot of people's obligatory contributions into bureaucratic hands, the inevitable happened. The bureaucrats wasted alot of money. (Wall Street is different. Before Obama and a Democratic Congress, no one was forced to invest in the NYSE.)

Konrad Yakabuski in the Globe & Mail has written possibly the most important newspaper article of this decade. If the Internet kills printed newspapers, I hope people like Yakabuski find a way to make a living.

His work is even more remarkable because no one in Quebec broke the story first in French.

For four hours and eight minutes, amid the plush decor and sprawling New France tableau of the Quebec legislature's ornate Salon Rouge, Henri-Paul Rousseau gave much better than he got.

It was late 2007, and Mr. Rousseau, the man entrusted to manage Quebeckers' pension savings, had been called before an all-party parliamentary committee to explain why he had risked $13.2-billion of the provincial nest egg on a financial instrument so opaque and complex that only a coterie of elite mathematicians understood it. A financial instrument, what's more, that had turned out to be a bad investment.

The gathering had been billed as a rare public chiding of the head of the colossal Caisse de dépôt et placement du Québec, an opportunity for camera-loving members of the National Assembly to remind Mr. Rousseau that the Caisse was more than a pension fund manager comme les autres. Its $155-billion asset base, the largest single pool of investment capital in Canada, was Quebeckers' meal ticket and a means for them to achieve financial clout in a world where small-nation sovereign wealth funds, such as Norway's, were becoming big names.

Konrad Yakabuski, Globe & Mail

If you don't understand this article, then you really don't understand modern Canada.

I will simply add that teh Caisse has investments of about $150 billion and the Quebec government's debt is about the same. IOW, the Quebec government has borrowed on capital markets (at about 2-3%) and then passed all the borrowed money on to the Caisse for portfolio management.

Think about what that means.

Edited February 1, 2009 by August1991

[msj]

As has already been pointed out in this thread and this other one which August conveniently ignores:

1) The markets have been terrible to most pension plans and most investment accounts.

2) The CPP is not the same thing as the QPP.

3) The CPP is managed under a long term (75 years) plan and a conservative rate of return (about 4.2%).

4) These assumptions are very conservative compared to, say, the pension plan that employees of the state of New Jersey need to rely on (i.e. at least 8% real return) [granted, this isn't fair - this pension plan is essentially broke; but then, it isn't entirely fair to compare the CPP to the QPP either so I will let it stand].

5) If the government "taxed" Canadians and took that "tax" and put it into a special retirement account and allowed that taxpayer to invest the funds in whatever he/she wanted than he/she would have been just as likely (probably more so) to have lost a bundle in the markets.

Retail investors have lost money on ABCP. They have seen their investment portfolios decline with the markets as have many index funds, mutual funds, hedge funds etc...

The difference being that we see pension funds quarterly performance - like most people, August ignores the years of good returns and only focuses on the years of poor returns. Never mind that many people who intended on retiring are now going to work another year or two since their own private portfolios have been hammered too (but of course we don't see those numbers consolidated and reported in the newspapers).

6) One only has to look to the banking system in the UK and the US to see just how incompetent the private sector is at managing risk - to claim that it is only the government, or only boards that are arms length of government, that are incompetent, is dishonest to say the least.

7) As for a state pension fund - it appears that most Canadians are happy with it. I hear very few of my clients complain about the CPP like they were back in the late 90's. In fact, those who arranged their affairs to stop paying into it have all switched back to pay into the CPP fund since they now believe the money is going to be there for them.

8) As for "no one was forced to invest in the NYSE" until Obama came along - well this is just a plain ridiculous statement that ignores the amount of taxpayer money that has been used to fund either equity stakes or to serve as loans or to serve as guarantees to loans for most of the US banking system, for an insurance company like AIG (which is effectively owned by US taxpayers), for the auto industry, etc... all of which happened under Bush.

How quickly, and conveniently, people forget.

Edited to add:

9) Looks like Australia's reforms haven't been so great:

Pension system reels from meltdown

For a look at the system see this.

To be fair - the meltdown in the markets is effecting everyone regardless of pension system. This is why people should be taking a view that their expected rate of return, after inflation, is likely to be no greater than 5% or 6% rather than the double digit returns generated in the 1990's.

Edited February 1, 2009 by msj

[Progressive Tory]

The flip flop was performed by the Liberals, not the Conservatives.

Harper's economic concerns pre-election were very different from those during the campaign; and different still once the campaign was over.

Beforehand he warned Canadians that his 'Cap and Trade' environmental plan was going to be costly, but did an about face, suggesting the Carbon Tax would bankrupt us. According to MacLean's magazine when comparing the two, Cap and trade was 'just as costly, twice as confusing and probably half as effective.' Yet he ran a successful campaign against the cost of the Green Shift.

Harper has a green plan too, though he'd rather not talk very much about it right now

"Well, now it's October, in the middle of an election campaign, and Stephen Harper no longer wants to talk about the costs of his environmental plan. Indeed, he never even mentions his plan. Rather, he wants to talk about the other guy's plan."

Or Perhaps:

Canada PM Harper Says No Risk of Federal Deficit Despite Slowdown

As the Prime Minister who supposedly has a Master's degree in economics, he should have been better prepared. Our banking system is sound because of measures taken long before he ever hit the political stage. He played with it a bit by allowing 40 year mortgages, but then clawed them back when he realized that might not have been a good idea; using it as a 'measure' to protect Canadians, when it was his government who allowed them in the first place.

Sorry, but when it comes to flips flops, the Conservatives are not immune.

[Topaz]

http://www.globalresearch.ca/index.php?con...a&aid=12114 This site tells of how states in the US are going broke and so are their pensions. Could it happen here, like the Ontario teachers pension?

[August1991]

As has already been pointed out in this thread and this other one which August conveniently ignores:

1) The markets have been terrible to most pension plans and most investment accounts.

2) The CPP is not the same thing as the QPP.

3) The CPP is managed under a long term (75 years) plan and a conservative rate of return (about 4.2%).

...

I'll stop you there msj because I think you are repeating a rather common misconception - and it's as old as Frank Capra. You seem to think that the CPP (or the QPP) have a mountain of cash (or gold, bonds, stocks, GICs, financial instruments) to pay future pensioners when they need the money.

msj, like Jimmy Stewart in "It's a Wonderful Life", the CPP and the QPP have nothing. They are just offices with paper. They can't give food, shelter or clothes to pensioners. We don't produce everything pensioners will need and then store it in some large warehouse. Everything we produce today is taken and used today. There is no warehouse for future needs.

In simple terms msj, where will the oranges in 2025 come from to put on the table of future retirees. Well, someone in 2025 will have to grow, harvest and ship them. The CPP/QPP is not storing oranges today for future pensioner needs.

The CPP/QPP are merely political promises from one generation to take care of another generation. And as political bureaucracies, these promises are subject to change. I fully anticipate that QPP payroll contributions will increase next year and taxes (clawbacks) on pensioners will rise in about 10 years.

In addition, the Caisse (and increasingly the CPPIB) have become independent bureaucracies that can arbitrage these promises. This is a more subtle point. The Caisse can change the signals in Quebec's economy. It can choose one sector over another - or it can ignore Quebec and go abroad.

Today, in central Moscow, there is a large building just outside the Kremlin, not far from Red Square. The building is now the State Duma, or what passes for the Russian Federation's Lower House. Before 1991, it was the main office of Gosplan - the Soviet State's main planning bureaucracy. It too tried to manipulate signals in an economy.

----

msj, I don't think you quite understand what the power to tax means. IOW, you don't really understand macroeconomics. For you, taxes are something that you try to avoid or lower. Organizing the financial affairs of a person or a business are not that different - even a large corporation. (Managing a family and managing a corporation are very different.) But government is an entirely different institution. Government finances (and I include the CPP in this) are not like any family or any business. The government (and CPP) can arbitrarily decide to raise contributions and lower benefits at any moment.

This power changes everything and a simple financial view of government as just another business or family (Advice: reduce debt) makes no sense in the case of government.

Edited February 3, 2009 by August1991

[msj]

Well August, since you can always tell me what I think I see no further point continuing on with this discussion.

One piece of advice though - actually read the CPP legislation and read about the CPPIB before going on about what you think you think.

[August1991]

One piece of advice though - actually read the CPP legislation and read about the CPPIB before going on about what you think you think.

Paul Martin as Finance Minister arbitrarily raised CPP contributions (payroll taxes). Brian Mulroney as PM arbitrarily clawed back ension benefits.

No private pension scheme could do such things. But the CPP (and OAP, GAINs) are not private pension schemes. They are public and subject to changing government laws. (Heck, even private pension schemes are subject to (changing) government laws.)

When governments have such power over pensions, the whole idea of a pension changes entirely. It is no longer a nest egg for the future. It is what it truly is: a political promise from one generation to another.

But there's more: who among the younger people should the older people trust to deliver on the promise? Who should decide this question? Should we concentrate these decisions into the hands of a few so-called experts?

In short, middle-aged Canadians have let bureaucrats decide who will presumably deliver the goods for them in their old age. Concentrating such power to decide winners in a few hands is not a wise idea. It usually comes to no good and that's what Gosplan (and the Caisse) show. And the CPPIB, whatever the law says, is a wannabe-version of the Caisse/Gosplan.

IMHO, if people save in government paper, it should be government bonds. Let the Minister of Finance, in a democratic parliament, answer to her/his decisions of what is done with my savings.

Governments cannot pick winners.

----

msj, are you aware of what is happening? The Quebec government has debt of about $150 billion and the Caisse has about $150 billion in assets. IOW, the Quebec government has borrowed money at about 2% interest (using the good name of Hydro-Quebec and the federal government) and then passed all this money off to a small bureaucracy of supposed experts for investments at rates above 10%. In effect, the Quebec government is using Canadian taxpayers (and Hydro Quebec) to play on margin. Yet the Quebec government is hardly the most egregious player.

Your own Canadian federal government is doing the same, as is the US federal government.

Edited February 3, 2009 by August1991

[msj]

[snip a bunch of stuff which has already been shown, repeatedly, to be nonsense]

msj, are you aware of what is happening? The Quebec government has debt of about $150 billion and the Caisse has about $150 billion in assets. IOW, the Quebec government has borrowed money at about 2% interest (using the good name of Hydro-Quebec and the federal government) and then passed all this money off to a small bureaucracy of supposed experts for investments at rates above 10%. In effect, the Quebec government is using Canadian taxpayers (and Hydro Quebec) to play on margin. Yet the Quebec government is hardly the most egregious player.

Your own Canadian federal government is doing the same, as is the US federal government.

What, you mean it's better to follow the GM business model?

You know, where GMAC borrows at 8% and then lends at 0%.

I'll take the (nearly) forced savings route any day over the alternatives that have failed in Italy, Australia, and Argentina.

I think most Canadians also accept this which is why they aren't fretting about the CPP.

I'm sure more Canadians are more concerned over their own private savings than the fate of the CPP.

Edited February 4, 2009 by msj