Mr. Speaker, I am pleased to say a few words on Bill C-3, the Canada Pension Plan. As we said when we spoke on this bill before, there is nothing major in the bill that would necessitate voting against it so we will be supporting the bill.
The bill would consolidate management of all CPP investments under the Canada Pension Plan Investment Board. It would no longer require the CPP to hold cash reserves equal to three months of benefits. The bill would also make various technical amendments as well.
The Canada pension plan is a very important cornerstone of the future retirement savings plan of most or all of Canadians. Certainly it is one plan that is broadly supported by a wide range of Canadians. Canadians support the notion of a secure government pension plan but also of course it maximizes their retirement income.
Generally, Canada's system of retirement saving has three main pillars. The first is the universal old age security and the low income supplement. Second, there are the earnings based Canada and Quebec pension plans as well. Third, there are private retirement savings and pension plans.
The Diefenbaker government initiated the work leading up to the 1966 introduction of the CPP. Progressive Conservatives have traditionally viewed the CPP as a fundamental part of Canada's social safety net, an obligation that government must meet and government has to honour. More than 2.8 million Canadians outside Quebec receive retirement benefits of up to $9,345 a year, depending upon how long they contributed and their employment earnings. Special benefits are also provided for people with disabilities, widows, widowers and orphans. The Quebec pension plan is not a lot different.
For three decades the CPP was a “pay-as-you-go” plan. Premiums only provided a fund equal to two years of benefit. By 1997, there was only $40 billion in that fund, while the cost of promised future benefits totalled $600 billion. Without changes to the overall plan, premiums would rise to 14.2% of pensionable earnings by the year 2030.
In 1997 Ottawa and the provinces agreed to two major changes to the CPP. The first was to increase premiums more rapidly than had been previously planned but to cap them at 9.9% in 2003, which would be $4.95 for employees and $4.95 for employers. This equalled an $11 billion increase in the annual premium revenues. The plan right now is sustainable over the long run at next year's rate. All Canadians will receive the benefits that they have been promised and that is a very good thing.
Second, changes were made to the way benefits were calculated reducing slightly the pensions of new beneficiaries, reducing the death benefit and making it harder to get disability benefits.
Third, new funds flowing into CPP funds would be invested in the marketplace and managed by an arm's length agency, which is the CPP Investment Board. Previously funds not immediately needed to pay for benefits were loaned to the provinces at the rate paid by the federal government on its long term bonds.
By 2010, CPP assets will equal $142 billion. By 2050, they will approach $1.6 trillion. Therefore, by the turn of the decade, the CPP will be by far the largest investment vehicle in all of Canada.
The CPP actuary says that the changes in the bill would increase returns on CPP assets by $75 billion over 50 years. That reflects both the higher returns of a more diversified portfolio and a reduction on the amount of money that earns lower returns as part of the cash reserve. This movement of the Canada pension plan beneficiary pool toward capital markets is one that in the long term should benefit all Canadians and improve their retirement incomes.
Notwithstanding what has happened in the last year or two in the capital markets, by and large managers recorded that the return last year on the Canada pension plan compared to most mutual funds and investment portfolios was fairly good.
The CPP Investment Board's governance model is built on two fundamental principles. First, the investment professionals must be able to make their decisions without political interference, which is a good thing. Second, there must be full accountability and reporting to Parliament, to the provinces and to the people of Canada.
The legislation seems to be carefully crafted to effect accountability while ensuring independence. Whether it actually plays out that way remains to be seen. Time will tell. However it is a start in the right direction. For example, the legislation would require the board to have a sufficient number of directors with proven financial ability or relevant work experience. Why the standard would be anything lower really is not an issue. In fact that should be the minimum prerequisite.
How the directors are appointed is a departure from the traditional practice for crown corporations. The committee appointed by federal and provincial finance ministers would nominate candidates and the federal minister would select candidates from the nominating lists of the committee in consultation with the provinces. At the end of the day the appointments would still come by way of a final recommendation from the Minister of Finance, only to be rubber stamped by an order in council. That may or may not produce the very best people, but let us hope it does.
The proposed bill is a very good step in the right direction. As a result, future boards will consist of professionals with accounting, actuarial, economic and investment credentials. They will be experienced in the private and public sectors and will bring to the board informed opinions on public and private sector governance.
There are other proposed legislative measures to ensure transparency and accountability. The board will also appoint external and internal auditors who will report directly to the audit committee of the board.
Despite these powers, government can check on what is being done with the public's money. Indeed the federal finance minister will be required to authorize a special examination of the CPP Investment Board books, records, systems and practices every six years. Perhaps there might have been some utility in the suggestion of performing examinations more frequently.
Our political and public accountability is especially important at a time when some Canadians may be worried about equity markets. The Canada pension plan has to be invested for the long term. Good portfolio management expertise will prevail with the right quality of people at the management level. That one reason why it is so important that the board of the Canada pension plan be chosen very carefully.
We have had and continue to have significant concerns about the way in which the government makes order in council appointments. The correlation between Liberal Party contributions and the appearance in the board's order in council appointments is somewhat unsettling. The degree to which this level of partisanship can threaten the potential quality of the board is a very important consideration. When we are talking about the future retirement incomes of Canadians it is absolutely essential that the individuals on these boards be beyond reproach and that they be chosen by absolutely no partisan influence.
Furthermore, the government has to take a look at other ways to address Canadian retirement planning right now. We are just a few years away from seeing a significant reduction in the number of Canadians who are actually working and paying taxes, along with a significant increase in the number of people who will be drawing pensions.
Therefore the government should heed the finance committee's report and the PC's dissenting report both calling for the increase of RRSP contribution limits. Of course, we have seen that over the last few days. Hopefully this is a step in the right direction. It is one way in which we can defer taxes to the future as people withdraw from the these RRSPs.
The Progressive Conservative Party supports the bill but we want to make sure that the elderly in Canada do not suffer due to rigid policies and misguided principles or bureaucratic holdups. As I said a moment ago, the bill is a step in the right direction.