It does not even cover the rate of inflation as my colleague has just said.
However, a different generation that retired in 1995 would receive a 9% return on their investment.
We are not saying one generation should receive less. What we are saying is to have some intergenerational fairness by proposing some genuine reforms to the system.
Despite the painful and expensive Liberal solution, the Canada pension plan's unfunded liability is hovering around a half a trillion dollars and is continuing to grow at 6% a year. Since the CPP investment board first invested funds in 1999 the board has delivered roughly 2.6% annualized performance, which is slightly better than the TSE over the same period. It is not enough to make up for the ever growing unfunded liability.
I am always perplexed as to why the government feels that the government and the wise men that it sets up in this board can investment the money in private markets, and yet Canadians such as ourselves do not have the wisdom to act in our own best interest to invest the money in a mandatory personal retirement account.
This could be a retirement account where the government could say to Canadians that they have to set aside a certain percentage of their income in a pension plan to ensure that they have something as a nest egg, as is done in the system in Australia.
In Australia there is one system where Australians have three options. Australians can choose to take the fully government directed plan where it is safe, secure and conservative because it is invested in government bonds. They get a minimal rate of return over a 20 year or 30 year period. They know that there is something there at the end, but then a second group can say it wants to invest a little more in equities or private markets. They have more of a mixed portfolio. In the third group, even though they still have to invest a certain amount in government bonds, there is more risk and they know that their rate of return will vary. Over time it will generally be much better, but it is not as conservative.
This gives the options to Australians that says they have to put aside a certain amount each year to invest in a nest egg. Instead of it being a pay as we go system, it is a system where it is actually invested in a person's name as a nest egg, but it is actually in one of three accounts.
In Canada we say to Canadians that they do not have the wisdom to invest themselves, that they are not concerned about retirement so the government has to take on the role for them. It is simply a patronizing attitude that many Canadians find offensive because they themselves take much more concern over their own retirement and the future of their children than the government does. It is just simply obvious.
Getting back to the ever growing unfunded liability in the Canada pension plan, this explains why in 1995 the Chief Actuary of Canada stated that contribution rates would have to nearly triple, from 5.6% to 14.2% over the next 30 years, simply to ensure the benefits could be paid for the immediate and indefinite future. Of course, we know what happened to him. He was simply fired. The messenger was fired because someone did not like the message.
By 2021 it is expected that the Canada pension plan payouts would exceed contributions again. After that, investment income would be needed to pay for benefits. At that time we can expect the percentage that Canadians would be asked to put into the Canada pension plan, I should not say asked because it would be demanded, would be increased again.
I now want to turn to some specific clauses within Bill C-3 and offer our critique of the clauses. Clause 15 applies to foreign property limits in the Income Tax Act to the CPP Investment Board.
During clause by clause consideration of the legislation, the director of finance, markets division, of the finance department's financial sector policy branch, Bill Mitchell, admitted to members of the finance committee that no particular study was done by the department to determine what the negative impact of this restriction would be on the long term performance of the CPP investment fund.
It is known to be a bad thing for private companies to invest the assets of their pension plans in their own securities and it can be argued that it is the same thing for governments. CPP Investment Board President John MacNaughton has said that all large investors face the challenge of having to manage within the capacity of the Canadian market. The Canadian market is small relative to the amount of capital in the country and it is small relative to world markets. Canada only represents 2.2% of global capital markets yet on the investment side we are much bigger than that.
As the CPP holdings get larger with regard to the opportunities available to invest in Canada, the limit is going to matter for other reasons as well. Baby boomers will begin retiring in 2012. By that time the CPP fund would have an excess of $140 billion. That would make it the largest investor in Canada, and among the largest in the world.
The CPP currently accounts for only 1% of the Toronto Stock Exchange's market capitalization. It could be as high as 10% by 2012 which is a dangerously high number for a single investor in a single market. There are concerns that public money would be competing with private money for the best investments. As time goes on the problem is only going to get worse. Every year the CPP will be piling in $16 billion to $18 billion in new money. It will own the market and this is a concern.
At the time that Bill C-3 was introduced I recall Andrew Coyne raising concerns about the undue influence that the CPP Investment Board, because of its size, would have within the private market.
This is something we should look at seriously. We in the Canadian Alliance feel that the bill is not a simple housekeeping bill. It is a bill that we should actually use to address some of these concerns. The concern obviously is that the government could then move money and unduly influence where the market goes in Canada. That simply is something we should not want and should seek to prevent.
The fact is that bigger is not always better. As an illiquid large investor, the CPP Investment Board will be unable to trade freely and smaller funds will delight in playing off the Canada Pension Plan Investment Board positions, which will only serve to the detriment of Canadians.
Ironically, the rise of the CPP Investment Board may entrench that 30% foreign property rule because when it is raised, Canadian markets could stumble badly if the Canada Pension Plan Investment Board tried to sell even a percentage of its immense holdings. The longer the government waits, the larger and more significant the fund will be to the Canadian investment climate.
I want to return to the issue of younger Canadians and the notion of intergenerational fairness. We in the Canadian Alliance feel that the Canada pension plan, as it is, is not fair to younger Canadians. We have a serious problem with the Liberal approach and its solution to the Canada pension plan and to its unfunded liability.
The chief actuary says that for every Canadian worker born after 1980 their CPP investment will offer them this 2% real return that I have been talking about. We have a situation where those Canadians born after 1980, and even before that, will be receiving a pathetic return on their investment. Even when they retire their maximum benefits are only $9,000. By the time Canadians who were born in 1980 reach retirement age, to be receiving $9,000, or even at that stage $12,000, is simply pathetic and will not enable them to secure a safe retirement.
According to the Canadian Taxpayers Federation, if young adults entering the workforce today invested their CPP contributions in a mandatory plan, they would have, at the very least, a $1 million nest egg by 2036. Does it not sound better to have a $1 million nest egg instead of the $9,000 or $12,000, whatever it will be, each year? The present value of the benefit package for the CPP will be worth about $570,000. Clearly there is a better solution available to younger people if we had a mandatory pension plan which was not a pay as you go plan.
The CPP basically is a transfer of resources from younger to older generations. As the population ages, the transfer will have to increase because there will be more older people in relation to younger working people. The problem is compounded because people are living longer. Today pension eligibility is age 65 and life expectancy is age 79, so the average Canadian can expect to collect CPP for 14 years. Life expectancy is likely to continue to rise due to medical advances, which is a good thing.
Many younger Canadians feel that they are paying into a system of pensions, health care and massive public debt, and they are not sure that they will get many benefits back. There is a possibility of a real ugly generational war within the next couple of decades. As Thomas Courchene at Queen's University has said, “We older Canadians, many of us tenured, are revealing ourselves to be a very selfish lot by turning the tables on generation X , a cohort with nowhere near the employment or income prospects that we enjoyed when we were young”.
However, Canadians are not doing this. Older Canadians themselves are extremely concerned about the futures of their children and grandchildren. It is the government that has done this. It is the government that has created a schism between generations.
Another issue with which the Canadian Alliance takes issue is the CPP Investment Board's vulnerability to political pressure and interference. It already has been suggested that CPP investments should be required to adhere to so-called Liberal societal values. There are calls that CPP should only be allowed to invest in certain companies that increase employment, that are environmentally friendly, that comply to employment equity and bilingual federal regulations, et cetera, the priorities determined of course by the board and by the government.
If the purpose of the board is to provide the best pensions we can manage for the price we are paying, these kinds of demands for social strings to be attached must be rejected outright.
It is not sensible to take a fund like the CPP and use it for industrial or social policies. That is because once the principle that other criteria will come into play has been established there is no obvious place to stop. The overall record of these types of public funds around the world is terrible.
The Canadian Alliance also takes issue at how individuals are appointed to the CPP Investment Board. I would like to stress of course that the people who are currently on the board seem quite up to the job in our perspective and we certainly have a high regard for them in a personal way.
Nevertheless, they are and will be in the future, and we always have to imagine what will happen in the future, appointed by governor in council on the recommendation of the Minister of Finance. The minister appoints them after receiving advice from provincial committees but he is under no obligation to follow this advice.
What protection does Bill C-3 offer members of the CPP to ensure that it does not go down the similar path of moving away from professional investors to those who are professional bureaucrats with a primary political focus? There is none.
In conclusion, we in the Canadian Alliance hope the government will come to its senses on this bill. We hope Parliament will reject the bill and send it back for much needed amendment and will look at some serious reform of the Canada pension plan so that younger Canadians will have a genuine opportunity to have their retirement secure and to have the good life that all Canadians enjoy.
I would like to propose an amendment, seconded by the member for Athabasca. I move:
That the motion be amended by deleting all the words after the word “That” and substituting the following therefor:
Bill C-3, an act to amend the Canada Pension Plan and the Canada Pension Plan Investment Board Act, be not now read a third time but be referred back to the Standing Committee on Finance for the purpose of reconsidering Clause 15 with the view to change section 15 of the act to remove the cap on the percentage of Canada pension plan money that might be invested outside of Canada.