Mr. Speaker, I welcome the opportunity to speak today at third reading of Bill C-3, which amends the Canada Pension Plan and the Canada Pension Plan Investment Board Act.
As hon. members are aware, this legislation completes the reforms to the Canada pension plan which the federal and provincial governments, as joint stewards of the plan, initiated back in 1997. Those changes were necessary because of the warnings in the early 1990s from the Chief Actuary of Canada that the sustainability of the Canada pension plan was at risk.
Governments heeded the warning and overhauled the system. Reforms included bringing forward scheduled increases in CPP contribution rates, building up a larger asset pool before baby boomers retire and investing it in the markets at arm's length from government for the best possible rates of return, and slowing the growing cost of benefits through administrative and expenditure measures.
By transferring all the CPP assets remaining with the federal government to the Canada Pension Plan Investment Board, Bill C-3 represents the final steps in CPP reform. Hon. members will recall that a key element of CPP reform was a new market investment policy for the plan, which the CPP Investment Board was established to implement. Clearly the need existed for this independent organization.
Prior to 1999 when the CPPIB began operation, the investment policy in place for the CPP required that funds not immediately needed to pay benefits be invested in provincial government bonds at the federal government's interest rate. That policy resulted in an undiversified portfolio of securities and an interest rate subsidy to the provinces.
As members know, the CPPIB is now responsible for the development of the CPP's market investment policy. Since 1999, funds not immediately required to pay benefits and expenses are transferred to the board and prudently invested in a diversified portfolio of market securities in the best interests of contributors and beneficiaries.
The CPPIB prudently manages billions of dollars of retirement funds belonging to Canadians to the highest professional standards and at arm's length from government, with highly qualified, professional managers making investment decisions. In addition, the board is fully accountable to CPP members and governments.
I also want to mention that the CPPIB functions under rules similar to those that govern other public sector pension plans in Canada. Its market investment policy is consistent with the investment policies of plans like the Ontario Teachers' Pension Plan and the Ontario Municipal Employees Retirement System, OMERS. The CPPIB is also subject to the foreign property rule.
Until now, not all CPP assets have been managed by the CPPIB. Certain assets have remained with the federal government. These assets include an operating reserve of about $6 billion and a large portfolio of mostly provincial government bonds valued at about $32 billion. Under Bill C-3 these remaining assets would be transferred to the CPPIB over a three year period.
This means that all CPP assets will be managed and invested in the market by one independent professional investment board, a move that essentially completes the process of reforming the CPP that was initiated in 1997 by the federal and provincial governments. Let me briefly review the benefits that will ensue with the passage of this legislation.
First, consolidating all assets under the management of one organization will allow the CPPIB to develop a more coherent investment policy for all CPP assets in order to enhance rates of return and better manage risks on the total portfolio, thereby helping to ensure the sustainability of the Canada pension plan. This will put the CPP on the same footing as other public sector pension plans, providing the CPPIB's investment managers with the flexibility to determine the best asset mix and investment strategies for the CPP.
Second, phasing in the transfer of the remaining assets over three years will help to ensure that the transfer is absorbed smoothly by capital markets, the CPPIB and provincial borrowing programs.
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 remaining assets to the CPPIB, Canadians can feel secure that prudent, sound investment diversification, as well as increased performance, will result for the entire CPP asset portfolio.
In considering this legislation, I encourage hon. members to keep in mind that the Chief Actuary of Canada has indicated that the CPP assets fully invested in the marketplace are expected to earn a greater return and thereby grow more rapidly. In his three actuarial reports since 1997, the Chief Actuary has confirmed the long term viability and financial sustainability of the CPP. According to the last actuarial report, investing the transferred CPP assets in the marketplace will produce a benefit of about $85 billion over the next 50 years for the Canada pension plan.
As I indicated earlier, it was the Chief Actuary who first brought to the government's attention in the early 1990s the fact that CPP assets, the equivalent of two years of benefits, would be depleted by 2015 and that the contribution rates would have to increase to more than 14% by 2030 if nothing was done. At that time the Canada pension plan had worked well for 30 years, but its sustainability was becoming a concern.
As a result, following coast to coast consultations with Canadians, the federal and provincial governments in 1997 adopted a balanced approach to CPP reform so that the plan could meet the demand of the coming years when the baby boomers would be retiring. As I mentioned, those reforms included an increase in CPP contribution rates, a buildup of a larger asset pool while baby boomers were still in the workplace, its investment in the markets at arm's length from government for the best possible rates of return, and administrative and expenditure measures to slow the growing costs of benefits.
All together, those measures ensured that a contribution rate of 9.9% could be expected to maintain the sustainability of the plan indefinitely, and now, through Bill C-3, with the transfer of the remaining assets to the independent professional CPP investment board, the 1997 reform of CPP investment policy will be completed.
I would like to remind the House that Canadians told their governments during the 1997 public consultations to fix the CPP and fix it right. Canadians also told their governments to preserve the CPP by strengthening the financing, improving the investment practices and moderating the growing costs of benefits. Governments met this challenge. Now, through the measures in Bill C-3, Canada's retirement income system will be even more secure for all Canadians.
Together with the 1997 CPP reforms, the measures in the bill will ensure that the Canada pension plan will remain on sound financial footing for generations to come. I urge all hon. members to give speedy passage to this legislation.