Finance Committee on Nov. 14th, 2016

Evidence of meeting #55 for Finance in the 42nd Parliament, 1st Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was enhancement.

A video is available from Parliament.

On the agenda

Subject Matter of Bill C-26, An Act to amend the Canada Pension Plan, the Canada Pension Plan Investment Board Act and the Income Tax Act

Committee Business

MPs speaking

Wayne Easter

Ron Liepert

Robert-Falcon Ouellette

François-Philippe Champagne

Also speaking

June Dewetering Committee Researcher

Glenn Purves General Director, Federal-Provincial Relations and Social Policy Branch, Department of Finance

Michel Montambeault Director, Canadian Pension Plan, Old Age Security, Office of the Chief Actuary, Office of the Superintendent of Financial Institutions

Pierre LeBlanc Director, Personal Income Tax Division, Tax Policy Branch, Department of Finance

Michel Millette Managing Director, Office of the Chief Actuary, Office of the Superintendent of Financial Institutions

Claude Lavoie Director, Economic Studies and Policy Analysis Division, Economic and Fiscal Policy Branch, Department of Finance

Marianna Giordano Director, CPP Policy and Legislation, Income Security and Social Development Branch, Department of Employment and Social Development

4:50 p.m.

Director, Canadian Pension Plan, Old Age Security, Office of the Chief Actuary, Office of the Superintendent of Financial Institutions

Michel Montambeault

Thank you.

In response to your first question, I said, during my presentation, that the financing approaches of the base and additional CPP were completely different. The base plan is more dependent on contributions because it's not fully capitalized. Conversely, the additional plan relies entirely on the capitalization of contributions.

The base plan is 70% dependent on contributions and 30% dependent on investment income. The additional plan, however, is 70% dependent on investment returns and 30% dependent on contributions. Because of the two different financing approaches, it's important to keep track of each element. That's why there will be two accounts.

4:50 p.m.

Liberal

Steven MacKinnon Liberal Gatineau, QC

Very well. Why not, though, put all the contributions together?

I'm just trying to understand the public policy rationale behind splitting the two accounts.

Why not put all the contributions in the same account and lower the risk exposure of the second component?

4:50 p.m.

Director, Canadian Pension Plan, Old Age Security, Office of the Chief Actuary, Office of the Superintendent of Financial Institutions

Michel Montambeault

The reason is that we rely on various types of financing, and in the case of the additional plan, we rely heavily on investment returns. Therefore, a less volatile investment policy may be necessary, as compared with the one applicable to the current plan, which is a bit less reliant on investment returns for financing.

4:50 p.m.

Liberal

Steven MacKinnon Liberal Gatineau, QC

Currently, you do a review of investment returns every three years, and you perform a CPP evaluation with all the parties to the agreement.

Do you think a more frequent review timeframe will be necessary?

4:55 p.m.

Director, Canadian Pension Plan, Old Age Security, Office of the Chief Actuary, Office of the Superintendent of Financial Institutions

Michel Montambeault

That decision won't be up to me. Prior to 1997, before the major reforms, reviews were carried out every five years. Since 1997, they have been done every three years. I think that's sufficient, but the provinces, who are the decision-makers, may decide otherwise. For the time being, they have opted for the status quo, meaning reviews every three years.

4:55 p.m.

Liberal

Steven MacKinnon Liberal Gatineau, QC

Is it typical to review the pension funds every three years, or should this committee recommend a more frequent review?

4:55 p.m.

Director, Canadian Pension Plan, Old Age Security, Office of the Chief Actuary, Office of the Superintendent of Financial Institutions

Michel Montambeault

My colleague, Mr. Millette, may be able to give you an answer regarding the public plans. For private pension plans, I believe the review is also conducted every three years.

November 14th, 2016 / 4:55 p.m.

Michel Millette Managing Director, Office of the Chief Actuary, Office of the Superintendent of Financial Institutions

Yes. It's three years for both public and private plans.

4:55 p.m.

Liberal

Steven MacKinnon Liberal Gatineau, QC

Okay, so it's consistent—

4:55 p.m.

Liberal

The Chair Liberal Wayne Easter

Hold on. I don't think we're picking up on it. The translation is a little slower than you folks.

Mr. Millette, what was your answer to the question?

4:55 p.m.

Managing Director, Office of the Chief Actuary, Office of the Superintendent of Financial Institutions

Michel Millette

For public plans, the review is also conducted every three years.

4:55 p.m.

Liberal

The Chair Liberal Wayne Easter

Okay.

4:55 p.m.

Liberal

Steven MacKinnon Liberal Gatineau, QC

This corresponds to the usual practice. Okay.

4:55 p.m.

Director, Canadian Pension Plan, Old Age Security, Office of the Chief Actuary, Office of the Superintendent of Financial Institutions

Michel Montambeault

Yes.

4:55 p.m.

Liberal

Steven MacKinnon Liberal Gatineau, QC

I think that's all I have for now, Mr. Chair.

4:55 p.m.

Liberal

The Chair Liberal Wayne Easter

Thank you. In any event, your time is up.

Mr. Deltell.

4:55 p.m.

Conservative

Gérard Deltell Conservative Louis-Saint-Laurent, QC

Thank you, Mr. Chair.

I want to welcome everyone to this parliamentary committee of your Parliament and your House of Commons.

First, I want to ask Mr. Lavoie some questions.

Mr. Lavoie?

4:55 p.m.

Claude Lavoie Director, Economic Studies and Policy Analysis Division, Economic and Fiscal Policy Branch, Department of Finance

Yes.

4:55 p.m.

Conservative

Gérard Deltell Conservative Louis-Saint-Laurent, QC

Okay. Sorry, I didn't see your name at a right angle. Some would say that I have crooked eyes, but not to that extent. We'll let the interpretation proceed.

Mr. Lavoie, did your division conduct a study on how these measures will affect employment?

4:55 p.m.

Director, Economic Studies and Policy Analysis Division, Economic and Fiscal Policy Branch, Department of Finance

Claude Lavoie

Yes. It was published in the backgrounder that the Department of Finance posted on the website.

4:55 p.m.

Conservative

Gérard Deltell Conservative Louis-Saint-Laurent, QC

What were the findings of the study?

4:55 p.m.

Director, Economic Studies and Policy Analysis Division, Economic and Fiscal Policy Branch, Department of Finance

Claude Lavoie

The findings indicate that, in the short term, there will be a very minor negative impact on employment. However, in the long term, the impact will be positive.

4:55 p.m.

Conservative

Gérard Deltell Conservative Louis-Saint-Laurent, QC

What do you mean by “long term”?

4:55 p.m.

Director, Economic Studies and Policy Analysis Division, Economic and Fiscal Policy Branch, Department of Finance

Claude Lavoie

The implementation will proceed over a seven-year period. The impact on employment will become positive around 2030 or 2035. Obviously, job growth will continue. Even during the implementation period, job growth will continue. However, it will be slightly weaker at the start, and will pick up again later.

4:55 p.m.

Conservative

Gérard Deltell Conservative Louis-Saint-Laurent, QC

You're talking about 2030 or 2035. It will take 20 years for the impact to be concrete, real and positive.