Mr. Speaker, Bill C-58, follows the 1997 government policy of moving away from a “pay as you go” pension system, with a system of a two year reserve fund, to a more fully funded pension system with a five year reserve fund managed by an arm's length investment board. We have had the “pay as you go” pension system since the days of Lester Pearson,
The CPP Investment Board, a crown corporation, was created by an act of parliament in 1997, one of the first acts that we passed in the House of Commons after the election. It has a mandate to focus strictly on the prudent rate of return. The CPPIB, which is the Canadian Pension Plan Investment Board, is expected to cover 25% of liabilities by the year 2012. The total amount of funds managed by the board at that time will be in the range of $120 billion to $150 billion, which would make it by far the largest investment fund in the country.
The investment board will implement a market oriented approach as controlled by a 12 member board of directors appointed by the Minister of Finance with input from the provincial ministers of finance. The members of the board are largely representative of the financial community and the board has some 40 employees who co-ordinate the investment board with large financial institutions.
Bill C-58 is an amendment to the Canada pension plan and the Canada Pension Plan Investment Board Act. Essentially what it would do is transfer the control of CPP reserve funds to the Canada Pension Plan Investment Board over a three year period. The board also implements the Liberal policy of allowing the CPP Investment Board to hold 30% of its investments in foreign property, in line with the budget of December 2001.
The government contends that the transfer of CPP funds would increase the strength of the Canada Pension Plan Investment Board by allowing for a higher rate of return on investments. The argument in support of a better rate of return rests on the historical performance of financial markets that generally outperform the rate of return of government securities. Moreover the Liberal government across the way contends that increasing the limit on foreign investment would also improve the rate of return. Currently the Canada pension plan holds investments worth some $53.6 billion, which as I said before is expected to increase to $120 billion to $150 billion by the year 2012, really a very large investment fund.
The Canada Pension Plan Investment Board should represent all stakeholders, not just the financial community. Right now the CPPIB does not represent all the stakeholders. Labour for example is not represented. The trade union movement, which represents millions of workers in the country, is not represented. Pensioners are not represented, yet they are very much at the heart of being important stakeholders in Canada pension plan.
However the banks and the brokerage firms, with the short term goal of increasing their profits, manage the board. The CPPIB invests on behalf of some 16 million Canadians but is only required to hold public meetings once every two years. The Canada Pension Plan Investment Board should be committed to a balanced representation so that pensioners as well as investors can have a say in the management of the fund. More transparency and more accountability is important in any open, free and democratic society.
Funds that are generated at taxpayer expense in my opinion should not be invested in foreign markets. We are not, and I certainly am not, against foreign investment for private investment groups but the dollars from a pension plan fund that is funded by taxpayers should be invested in Canadian companies and in Canadian securities. In other words, let us use the Canadian public pension fund to invest in the Canadian economy, strengthening our economy and creating jobs for future generations.
Investing government securities will help the economy by channeling money to the provinces and municipalities where it will fund improved infrastructure, housing initiatives and other projects, which are sorely needed as the infrastructure in this country has deteriorated in many ways right across Canada. I think of housing. I think of the water system and the water treatment system. I think of roads and transportation. I think of railways and many other public investments that could be much helped by CPP investment money.
Investment in Canadian businesses, especially new businesses, is important for the economy. In the United States, pension funds provide nearly 50% of venture capital. Canadian entrepreneurs should have access to such venture capital through the Canada Pension Plan Investment Board. The returns on investments in government securities and Canadian businesses may be less initially, but the new jobs created by reinvesting in the Canadian economy will create new pensions for new pensioners and increase the funds of the Canada pension plan.
The Canada Pension Plan Investment Board should implement the use of ethical screening for investment. This is something I have raised in the House of Commons on more than one occasion and also at the finance committee with the Minister of Finance. Why not use an ethical screen to make sure that the investments made by the board are made on an ethical basis?
The Canada Pension Plan Investment Board must have ethical screening to prevent investment in companies with poor environmental standards, for example, or with poor child labour standards or sweatshops, and to prevent investment in tobacco companies and other companies that harm people. Currently the CPPIB does not have an ethical screen for its investments. It has been shown that ethical screening does not reduce the rate of return. In fact, if one looks at many ethical funds in the country, one sees that their rate of return is not reduced but is in some cases higher than that of the funds that do not have an ethical screen. I think of the ethical funds in the credit union movement, for example, which have a very good track record in Canada.
It is interesting to note as we debate the Canada pension plan and look at the review of the CPP that the CPPIB now plans to invest some $350 million in foreign companies over the next five years. Companies involved in leveraged buyouts will receive a good deal of this. As of March 31, 2002, the Canada Pension Plan Investment Board has a realized a cumulative loss of $64.8 million, despite reporting portfolio gains in recent years of up to 40.1%. Since its inception the board has had a healthy return in Canadian equity investments, annualized at the rate of 13.8%, and has had a consistent loss on foreign investment, at an annualized rate of -0.3%.
Until 1997, provinces borrowed funds in 20 year loans from the CPP at a preferred rate, the cost to the government to lend these funds. They were lent to provincial governments at cost. Now they borrow the money at market rates set by the Minister of Finance. Of course that becomes more expensive to the provinces over the long run than it was under the previous rules and regulations of the Canada pension plan.
The market value of the CPP Investment Board is $14.2 billion in terms of what is currently invested in equity, with 70% of investment in Canada and Canadian companies, 15% in the United States and American companies, and 15% in other nations and other companies. As a matter of fact there was an article this morning in the Ottawa Citizen in which the headline stated “CPP [Canada Pension Plan] puts $500M [million] into risky business”. The sub-headline stated “It plunges into angel funds and venture capital” funds. The article is raising some concern about the risk for the Canadian pensioner who contributes to the Canada pension fund. The article also states that some $2 billion Canadian will be going into the American private equity funds over the next few years and some $537 million Canadian into European buyout funds over the next few years.
There is this move to invest more and more of Canadian taxpayers' money and pension money into foreign funds, foreign equities and buyout funds, to invest in certain equity funds that are highly risky on behalf of the people who are the owners of the Canada pension plan.
According to the Canada Pension Plan Investment Board, concerning the issue of ethical screening its position is the following:
Our legislation specifically prohibits us from engaging in any investment activities other than maximizing investment returns...The policy fully states that we will not accept or reject investments on non-investment criteria.
That is the position of the board when it comes to ethical investments and I am saying that we should look at an amendment to make sure that we have an ethical screen.
Tobacco is a very good example of that. Tobacco and cigarette smoking are very harmful and very costly in terms of the health of Canadians and the funds of our country. I do not think we should be investing the Canada pension plan money in Philip Morris or any other tobacco companies. We do not want to send a signal that smoking is a good thing for the people of this country, yet the government across the way so far has not agreed to look at an ethical screen. I know that some members across the way would support the idea of an ethical screen on tobacco. I have heard them speak out against tobacco and talk about a national campaign to stop cigarette smoking in the country.
So on the one hand we have the government advertising to young people and others that they should stop smoking and we have spent hundreds of thousands of dollars over the years in campaigns to stop smoking, but on the other hand we have the Canada Pension Plan Investment Board investing in tobacco companies. It is doing the exact opposite of a policy that the Government of Canada is advocating. Here we have a conflict in policy and a contradiction between the left hand and the right hand of the government.
The rates of return for the 2001 fiscal year, which ended in March 2002, were a modest 3.4% for equity. This is lower than the return on government bonds, which I think was 5% for the same period of time. Investment outside of government securities involves risk. For an entity mandated to reduce the risks as well as to realize a profit, government securities are a lot stronger investment. Certainly the facts on that in the last year or two speak for themselves.
In 2001, Canada Pension Plan Investment Board investments in private firms suffered a loss while government securities remained stable. I think a lot of people in this country, including the member for Davenport, would appreciate a stable, guaranteed rate of return for our nation's public pension fund, which is the foundation on which to build retirement income for each and every single Canadian.
The real rate of return for the Canada Pension Plan Investment Board is about 7%. The change in government securities returning 1% or 2% less would be worth the growth in the economy from the investment and the low risk, because we would be investing in our own country, investing in our own businesses and investing in our own infrastructure. We would be investing in public programs of value to Canadian people. We would be growing the economy and having all the spinoffs from a growing economy with fewer people unemployed and so on.
The total assets of the Canada Pension Plan Investment Board come to $53.6 billion. This includes the two year fund of $40 billion that was initially transferred from the Canada pension plan. Government bonds total nearly $32.6 billion. Some $13.8 billion is invested in publicly traded companies. Nearly $400 million is currently invested in venture capital and buyout funds. The fund is meant to represent 25% of the liabilities, leaving the system largely pay as you go. When the Canada pension plan was first established in the 1960s it was a pay as you go plan and remained one until the amendments of recent years by the Liberal government.
As we look at what is before us today, I would recommend that we oppose the bill unless changes are made that provide the CPPIB with a mandate to put an ethical screen in place. I also would like to see the bill's provision for investment in foreign markets eliminated, because I think we should put the money from Canada's large pension fund into Canada.
Investing in private equities is a way of improving the rate of return for CPP funds. It makes sense if they are in Canada, but having no ethical screen for those investments is bad policy. Canadians are forced to pay their CPP premiums into an investment fund that has no rules against investing in tobacco or companies that make use of child labour or companies that have very poor environmental standards. The government must develop an ethical screen for the CPP investment fund through public hearings and consultations with those who have developed ethical screens in the private and co-operative sectors. In that regard I would mention the credit union movement, which has seven, eight or nine different ethical investment funds for the credit union movement in the country. Improvements to pension legislation should also give employees the opportunity to decide if they want an ethical screen to be part of the investment decision in their pension fund.
Finally, at this time we should also bring in an amendment to the Canada Pension Plan Investment Board legislation that would provide for representation of other stakeholders on the board of directors. Here I am thinking of the pensioners themselves who should be represented on the board. Here I am thinking of the trade union movement, which represents the workers who will be future pensioners. They too should have representation on the board of directors.
If we do these things, if we have the ethical screen and representation on the board for the working people and retirees, and if we roll back the amount of money going into foreign markets with more money going into the Canadian markets such as the provinces and municipalities at low interest rates at cost to the federal government, with those three things, I think we would have a Canada pension fund that would reflect what the Canadian people want.
When I go across the country people tell me they are concerned about their security in terms of the Canada pension fund. They are worried about the future of the Canada pension fund. I believe there is no need in a country as wealthy as ours to worry about the future security of our major pension fund, but if more of it were invested in Canada, in provincial bonds and bonds to municipalities, schools and hospitals, it would strengthen the economy and the pension fund itself would be that much more secure.
I hope we can have a real debate on this in committee and come out of it making some amendments in those areas to make the Canada pension fund, which is the foundation for retirement income in the country, an even better fund for the Canadian people in the years that lie ahead.