Finance Committee on April 28th, 2009

[Jean Claude Ménard]

No.

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

You do not just do valuations, intensity forecasts.

[Jean Claude Ménard]

We are responsible for doing an actuarial valuation of the Canada Pension Plan every three years....

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

That's it?

[Jean Claude Ménard]

...and of the Old Age Security Program. These two actuarial reports cover a 75-year period. We also do the actuarial reports for the public service of Canada, the Royal Canadian Mounted Police, the Canadian armed forces, judges appointed by the Federal Court and members of Parliament.

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

Do you make any recommendations when you valuate private pension plans?

[Jean Claude Ménard]

Absolutely not.

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

D'accord. Parfait.

Ms. Warmbold, I have a quick question. Maybe it's a quick question. It may be along the same lines as Mr. Dechert's question.

Why is there the big difference in the CPP rate of return? It's minus 14%, and I'm supposed to be happy about it, but the fact is that I'm a Quebecker. How does a 25% decline on rate of return and a $40 billion loss happen? How is it okay that somebody can realize a 14% negative return? You're one of the best, and meanwhile other pension plans are coming in at minus 25%, or up to minus 40%, as Mr. Ménard previously said. What is the difference? When do we put on our hat and say that maybe we're better off living in another part of Canada, or maybe we're better off living in other parts of the world? The experts are not doing their jobs, according to me.

[Benita Warmbold]

I don't think it's appropriate for us to comment on the results of the Caisse or the other plans. What I can point out, though, is that we enjoy a very strong governance model, which was set up originally in 1999, when the CPPIB was first enacted. We have a very clear mandate. We have a very long-term investment horizon.

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

Is it because of governance, or is it because of decisions that were made by the so-called experts, the people raking in the big bonuses?

[Benita Warmbold]

I think you have to start with an appropriate governance model. We get many, many pension funds from around the world coming and asking us how we follow our investment—

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

So what would be the big difference between your governance model and the QPP governance model?

[Benita Warmbold]

On a specific basis, I'm not familiar with theirs. We have an independent board that is appointed by—

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

So the QPP model is more politicized?

[Benita Warmbold]

No comment.

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

Well, you can acknowledge it. My understanding is that as pension plans, especially the big ones, you communicate with each other in terms of whether you are going to take positions in real estate or even in public companies or private companies. You will sometimes share in responsibilities, so....

[Benita Warmbold]

Sure, we partner with other pension funds globally.

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

So it's not a big secret what the other pension plans are doing because in fact you are sometimes competitors and sometimes partners. If you're getting in and out of positions, those will affect the market and they will affect your returns.

[Benita Warmbold]

I think what you have to look at is our long-term horizon. As Mr. Ménard pointed out earlier, we won't have to pay benefits for another 11 years, and there are other factors that he would be in a better position to—

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

I don't think it's any different for the QPP. And I don't mean to interrupt you, it's just because my time is limited.

Mr. Ambachtsheer, you were nodding your head, so if you could just comment on that, I'd appreciate it.

[Keith Ambachtsheer]

We've done some research on this question of governance and the impact of governance on results, and there is in fact a statistically significant relationship. What you find is that when you put together a board, it needs to have a public service attitude and dimension, but it also needs to have the composite skill and experience that's relevant to the mission of the organization.

In a lot of funds, not just at the Caisse de dépôt but, for example, in most of the U.S. public sector plans, there is in fact a heavy political overlay in how appointments to boards are made. In the U.S., if you look at CalPERS, you have a number of elected politicians sitting on the board of trustees. I think that creates potential conflicts. These people are not necessarily in the best position to oversee the affairs of a long-horizon investment organization. So, yes, I think how you put together a board is tremendously important.

[The Chair, Conservative, James Rajotte]

Thank you.

We'll go to Mr. Kramp.

[Daryl Kramp, Conservative, Prince Edward—Hastings, ON]

Thank you, Chair.

Welcome to all.

I'm going to direct a question to Ms. George, and it's following a statement made by Mr. Ambachtsheer, as well as a previous witness we had before the committee on behalf of CARP, Susan Eng. She suggested at that time—and following up on Mr. Ambachtsheer's comments—that we have a number of people who do not have the availability, whether it's a one-third/one-third mix, etc., including seniors, particularly on low income. Ms. Eng, at that particular time, contrary to Mr. Ambachtsheer's suggestion, suggested that, very simply, we just need to double up. We need to be able to have an increase of approximately 20% across the board, and that would really solve the issue, from her perspective.

Obviously I respect Mr. Ambachtsheer's comments, but, Ms. George, dealing directly with the people you represent, if you had a 20% increase across the board, of course, to the employer, per se—whether it's industry, small business, SMEs, whatever—that would mean an increase to them in excess of 10%. In the highly competitive world right now, and particularly due to the economic climate, could you give me an indication of how that would affect the people you represent?

[Shirley-Ann George]

Thank you for the question.

Perhaps our numbers might be a little bit different, but we also see that there are some Canadians who do not have the pension coverage they would like to have. At this point in time, our recommendation would be that in addition to the excellent work that has been done by the Rotman School of Business, you should actually talk to some of the insurance companies. They are able to provide a scaled, well-managed, and arm's-length additional pension, if some changes are made to the system. We need a safe harbour for balanced risk.

We need to harmonize the 13 different pension rules systems that we have in this country, and if there were changes to the Income Tax Act, as was recommended, that allowed group RRSPs or multi-employer RRSPs, along with some smart regulation and good governance guidelines, much of what is being asked for here could in fact be delivered through private insurance companies. These insurance companies are willing to step up to this today if some of the changes could be made. So before we look at only one model, we might want to look at others as well. I would add to this that they do have the infrastructure in place today, so you wouldn't need a new organization. Competition is good to drive innovation and customer customization, and to ensure lower costs, and we can get quality, variety, and transferability through this type of initiative, whereas if we go down the government route, we tend to end up with one size fits all and a static system that is not necessarily less costly.

[Daryl Kramp, Conservative, Prince Edward—Hastings, ON]

Perhaps, Mr. Ambachtsheer, you could offer some comment on this as well.