Mr. Speaker, I rise to speak at second reading of Bill C-58 which amends the Canada pension plan and the Canada Pension Plan Investment Board Act.
Through the bill the federal and provincial governments as joint stewards are completing the final stages of the 1997 reforms to the Canada pension plan.
Future generations of Canadians, including our children and grandchildren, would benefit from these measures which transfer all remaining CPP assets to an independent investment board, namely, the Canada Pension Plan Investment Board, CPPIB.
Endorsed by the federal and provincial financial ministers five years ago these reforms would help ensure that Canadians have a pension plan on which they can always depend.
The end result of moving to complete the market investment policy for the Canada pension plan would be increased performance, better diversification and enhanced risk management of the entire CPP portfolio.
To put Bill C-58 in context, it is necessary to take a moment and review the role and the responsibilities of the Canada Pension Plan Investment Board. However, it goes without saying that any discussion of the CPPIB must also include some remarks about the Canada pension plan itself. The background I am about to provide will be useful to hon. members in understanding why the amendments in the bill are needed.
I wish to begin my remarks with some general comments about Canada's retirement income system. As hon. members may know Canada's retirement income system is supported by three pillars--a blend of public and private pension provisions that are considered internationally as one of the most effective ways to provide for retirement income needs.
First, there is an old age security program which provides public pensions for seniors and ensures all Canadians a basic income in retirement.
Second, there is the Canada pension plan, a national contributory pension plan, which provides working Canadians and their families with income support at retirement and in the event of disability or death. It is central to today's debate.
Third, there are tax assisted fully funded employer sponsored pension plans, RRSPs and other private savings, the private component of the system.
Most Canadians take our retirement income system for granted, but that was not always the case. In Canada, in the early years, taking care of older citizens and those with disabilities was primarily the responsibility of individual families. The introduction of income tax in 1917 allowed the federal government to adopt national social programs, such as Canada's first old age pension in 1927, which included a means test. Unemployment insurance, family allowances and a universal old age security program were introduced after the second world war.
There was also a need for a public pension, one that could be carried from job to job and, indeed, from province to province. The answer was the Canada pension plan, a compulsory earnings based national plan set up jointly by the federal and provincial governments in 1966 to which all working Canadians contribute.
The CPP provides all wage earners with retirement income and financial assistance to their families in the event of death or disability. Quebec administers its own complementary plan, the Quebec pension plan, QPP. The Canada pension plan was designed to complement, not replace, personal savings and employment pension plans and for 30 years it worked well. By the 1990s, however, the sustainability of the plan had become a concern.
The Chief Actuary of Canada predicted that the assets of the Canada pension plan, the equivalent of two years of benefits, would be depleted by 2015 and contribution rates would have to be increased to more than 14% by 2030.
The federal and provincial governments subsequently released a document entitled “An Information Paper for Consultations on the Canada Pension Plan”, which outlined the challenges facing the plan in the coming years.
They followed up in February 1996 with the announcement of public consultations on the Canada pension plan. Guided by panels of federal, provincial and territorial elected representatives, extensive consultations were held in every province and territory. In joint hearings from coast to coast, governments heard from actuaries, pension experts, social planning groups, chambers of commerce, seniors' groups, youth organizations and from many interested individual Canadians.
A common theme that emerged was that Canadians wanted governments to preserve the Canada pension plan by strengthening its financing, improving its investment practices and moderating the growth costs of benefits.
Following these consultations, the federal and provincial governments in 1997 adopted a balanced approach to CPP reform so that the plan could meet the demand in the coming years when the baby boomers would be retiring. These changes included: a rapid increase in CPP contribution rates and a building up of a larger asset pool while baby boomers are still in the workforce, investing this fund in the markets at arm's length from government for the best possible rates of return, and slowing the growth costs of benefits. Altogether, these measures ensured that a contribution rate of 9.9% could be sufficient to maintain sustainability of the plan indefinitely.
A key part of the 1997 CPP reforms was a new market investment policy for the CPP. The Canada Pension Plan Investment Board, an independent professional investment board, was set up in 1998 to implement this market investment policy. The mandate of the CPP investment board is to invest for CPP contributors and beneficiaries and to maximize investment returns without undue risk of loss.
Until 1999, when the CPPIB began operations, the CPP's investment policy was for funds not immediately required to pay benefits to be invested in provincial government bonds at the federal government's interest rate. This represented an undiversified portfolio of securities and an interest rate subsidy to the provinces. Since then, under the new policy, CPP funds that are not needed to pay benefits and expenses are transferred to the CPPIB and are prudently invested in a diversified portfolio of market securities in the best interests of contributors and beneficiaries.
The CPP investment board operates under investment rules similar to those of other pension plans in Canada, which require the prudent management of pension plan assets in the interests of plan contributors and beneficiaries and, like other pension plans, is subject to the foreign property rule. This market investment policy is consistent with the investment policies of most other pension plans in Canada, including the Ontario teachers' pension plan, the Ontario municipal employees' retirement system, OMERS, and the Quebec Caisse de dépôt.
Because the CPPIB is responsible for billions of dollars of retirement funds belonging to Canadians, it is imperative that the board be fully accountable to them. These funds must be managed prudently to the highest professional standards and at arm's length from governments, with qualified managers making investment decisions.
The CPPIB act was designed to ensure full transparency and accountability. Let me explain. To begin, the CPP investment board is accountable to CPP plan members and federal and provincial governments. It keeps Canadians well informed of its policies, operations and investments by: making its financial results and investment policies public; releasing quarterly financial reports; publishing an annual report that is tabled in parliament; holding regular public meetings in each participating province to allow for public discussion and input; and maintaining a very informative website.
A robust process with strong checks and balances that is in place for identifying and appointing CPPIB directors also assures full accountability of the CPPIB. Great care was taken in structuring the CPPIB to ensure that the board of directors is independent and accountable to CPP contributors and beneficiaries. Directors are appointed by the federal government following consultation with the ministers of finance in the participating provinces. The Minister of Finance also consults with provincial ministers of finance and with the board of directors on the appointment of the chair.
Based on specific criteria, directors are chosen from a list of qualified candidates recommended by a joint federal-provincial nominating committee, which comprises one representative from each of the nine participating provinces. In addition, in making appointments to the board of directors, consideration is given to ensuring that a sufficient number of directors have proven financial ability or relevant work experience to enable the CPPIB to carry out its objectives. As a result, the board includes individuals with business, financial and investment expertise.
I am pleased to say that the independence and the quality of the CPPIB board of directors have received strong support from the public and pension management experts. Independence from governments in making investment decisions is critical to the CPPIB's success and public confidence in the CPP investment policy. This is of utmost importance, because the money the CPP investment board invests today will be needed by the CPP to help pay the pensions of working Canadians who will begin retiring 20 years from now.
This brings me to the measures in Bill C-58. Bill C-58 proposes to transfer all assets remaining with the federal government to the CPPIB over a three year period. This includes a cash reserve and a large portfolio of mostly provincial government bonds. In other words, these changes would mean that all CPP assets would be managed by one independent professional organization.
These asset transfers would represent the final steps of the path established by the federal and provincial governments in 1997 to invest CPP assets in the market by an independent professional investment board. Consolidating all assets in one organization would also put the CPP on the same authority and footing as other major public pension plans, thereby providing fund managers with the flexibility to determine the best asset mix and investment strategies to manage risks and optimize returns.
This may sound theoretical, but I want to take a moment to point out that the analysis undertaken by the Chief Actuary of Canada indicates that CPP assets fully invested in the market would be expected to earn a greater return and thereby grow more rapidly. The benefit, as estimated by the chief actuary, is very significant, in the order of an additional $75 billion over 50 years. Obviously this welcome result would add considerably to the soundness of the Canada pension plan and enhance Canadians' confidence in the their public pension plan. In addition, transferring the bonds to the CPP investment board over three years would provide a smooth transition for capital markets, provincial borrowing programs and the CPPIB.
Last, all changes in the CPP and CPPIB regulations require the approval of the provinces. I am happy to report that all provincial and territorial governments unanimously support these changes and let me emphasize that it is unanimous. Also, before new legislation comes into force, the provinces need to formally approve the changes. As I have stated more than once during my remarks, the bill essentially would complete the process the federal and provincial governments began in 1997 of investing CPP assets in the market by an independent professional investment board.
Let me reiterate a few of the other points I made earlier. First, as I have just stated, according to studies, investing CPP assets in the market will produce a very large benefit in the order of $75 billion over 50 years for the Canada pension plan. Second, as I also indicated, phasing in the transfer of the assets over a three year period will help to ensure that the transfer is absorbed smoothly by capital markets, the CPPIB and provincial borrowing programs. Third, placing all CPP assets under the management of the CPPIB will allow the board to develop a more coherent investment policy for all CPP assets to enhance rates of return and better manage risks on the total portfolio, thereby helping to ensure the sustainability of the CPP. This puts the CPP on the same footing as other public pension plans.
As hon. members know, the CPPIB is responsible for establishing and fully disclosing its investment policies and for investing CPP assets while properly minimizing risk. With the transfer of the assets to the CPPIB, Canadians can feel secure that prudent, sound investment diversification as well as increased performance will result. I should mention, too, that the transfer of the CPP assets to the CPPIB will have no impact on the Quebec pension plan, which is administered separately from the CPP.
In closing, may I remind the House that during the 1997 public consultations on CPP reform, Canadians told their governments to fix the CPP and to fix it right. As I noted at the beginning of my remarks, Canadians also told their governments to preserve the CPP by strengthening its financing, improving its investment practices and moderating the growth costs of benefits. The provincial and federal governments have completed their work and have complied with all these requests.
The establishment of the Canada pension plan in 1966 was one of the most important public policy initiatives ever undertaken in the country. The CPP reflects a national benefit that retirement for working Canadians should not be a time of hardship. It also captures the Canadian value of shared responsibility among contributors and governments to provide reliable support to wage earning Canadians after they cease active work.
Ours is a government with a conscience. Together with the 1997 reforms, the measures in the bill ensure that the Canada pension plan will remain on sound financial footing for future generations, to which I am sure all members can relate. Through Bill C-58 the government is well on the way to fulfilling its goal of making the retirement income system secure for all Canadians. Most certainly, Canada's success as a nation must be the security of its seniors and the protection of those at risk.
I urge hon. members to support the passage of this legislation without delay.