Mr. Speaker, it is my pleasure today to speak to a motion introduced by the hon. member for Winnipeg Centre, which deals with the investment policies of the Canada Pension Plan Investment Board.
First, I would like to provide all hon. members with some background on the Canada Pension Plan Investment Board and explain some of the measures it has taken to protect the sustainability of our pension system while promoting the values of Canadians.
The Canada Pension Plan Investment Board is the product of the need to ensure that the Canada pension plan will continue to provide the vital benefits that allow our seniors to enjoy a comfortable, indemnified retirement.
The Canada pension plan was created in 1966. The then government realized that Canadians needed a public pension plan that could be carried from job to job, and 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 to which nearly all working Canadians contribute.
The CPP provides all wage earners who paid into the plan with retirement income. It also provides financial assistance to their families in the event of death or disability. The Canada pension plan was designed to complement, not replace, personal savings and employment pension plans.
The Chief Actuary of Canada predicted that the assets of the Canada pension plan, the equivalent of two years of benefits at the time, would be depleted by 2015 and contribution rates would have to be increased to more than 14% by 2030, for the plan to remain viable.
The federal and provincial governments subsequently released a discussion paper and held Canada-wide consultations on the CPP in the mid-1990s.
In joint public hearings from coast to coast, Canadians sent governments a clear message. They wanted them to preserve the Canada pension plan by strengthening its financing, improving its investment practices and moderating the growth costs of benefits.
Canadians expressed their desire to see the necessary changes made to the Canada pension plan. During these hearings, governments heard not only from one or two interest groups, but from Canadians who truly represented the public. They heard from seniors, young people, social planning groups, pension experts, actuaries, chambers of commerce, and from a great many ordinary Canadians interested in and concerned about the CPP.
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.
All changes to this federal-provincial program must be approved by at least two-thirds of the provinces representing at least two-thirds of the population.
Those reforms included a rapid 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. The federal and provincial ministers concluded, in their most recent study in December 2002, that the plan was financially sustainable and would be able to pay benefits to future retirees.
The new market investment policy was a key element of CPP reform in 1997. The Canada Pension Plan Investment Board, which is the subject of today's debate, was set up in 1998 to implement this new investment policy.
Created as a professional and independent investment board, its mandate is to invest on behalf of contributors and beneficiaries and to maximize the return by reducing the risks of unjustified losses.
Before the board was created, 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 and an interest rate subsidy to the provinces.
Now, under the new policy, 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.
I would like all of my colleagues to know that the new investment policy is consistent with the investment policies of most other public sector pension plans, including the Ontario teachers' pension plan—which is a major pension plan—and the Ontario municipal employees' retirement system. The CPP Investment Board operates under investment rules similar to those of other public sector pension plans in Canada.
These rules require the plan's assets to be prudently administered in the interest of plan contributors and beneficiaries. As well, like all other public plans, it is subject to the foreign property rule restricting investment in non-Canadian companies to 30% of the portfolio.
I would now like to address the content of the motion presented by the hon. member for Winnipeg Centre. Our position on this has always been clear. Canadians are entitled to know why, how and where their CPP contributions are invested, who makes the investment decisions, what assets are held on their behalf, and what the yield is on their investments.
It is essential that the board be fully accountable to Canadians and to federal and provincial governments, and this is indeed the case. It is also essential that Canadians' retirement funds be managed to the highest professional standards and at arm's length from government, with highly qualified, professional managers making investment decisions. And this too is the case.
As many of my colleagues are aware, the framework of governance established for the investment board is designed to ensure total transparency and accountability. I will go into detail on that if I may.
The CPP investment board keeps Canadians well informed of its policies, operations and investments through quarterly financial reports, an annual report tabled here in parliament, regular public meetings in each participating province, and of course its website, where its financial results and investment policies are posted.
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. Directors are chosen from a list of candidates recommended by a joint federal-provincial nominating committee after consultation with provincial finance ministers. As a result, the board includes individuals with strong business, financial and investment expertise.
Independence from governments in making investment decisions is critical to the CPPIB's success and public confidence in the CPP investment policy. I should point out that the independence and the quality of the CPPIB board of directors have received strong support from the public and pension management experts.
Some Canadians, including the hon. member for Winnipeg Centre, are concerned that the CPP's assets are being invested in companies or countries whose activities or policies are contrary to their own convictions. In the context of promoting socially responsible investments, they feel that we should take advantage of the power represented by our investment portfolio to influence factors that do not relate to investments.
However, there are other Canadians, some of whom use socially responsible criteria to make their personal investment decisions, who feel that we should focus on the return of the investments, since the financial security of the pension plan is in itself a major social policy goal.
It may be easy for an individual or a group of people who share the same ideals to make investments that pursue social goals. However, it is rather difficult if not impossible to do so for an institutional investor who represents over 16 million CPP contributors and beneficiaries whose personal convictions are extremely varied.
The legislation that regulates the board's activities specifically prohibits it from engaging in any investment activities other than maximizing investment returns without undue risk of loss. Consequently, the board does not select or exclude investments through the application of positive or negative screens based upon religious, social, economic, political, or personal criteria, or any other non-investment criteria.
The board's social investment policy, approved in March 2002, considers as eligible for investment securities of issuers engaged in a business that is lawful in Canada; and securities of issuers in any country with which Canada maintains normal financial, trade and investment relations.
The policy further states that the board will not accept or reject investments based on non-investment criteria. However, it will generally support corporate policies and practices and shareholder resolutions that would result in the disclosure of information that could enable investors to evaluate whether a corporation's behaviour will enhance or hinder long-term investment returns.
The board has also established mechanisms to promote sound corporate management and proper accountability on the part of corporations whose securities are part of its portfolio.
Under these instructions for proxy voting, the board uses its right to vote as a mechanism for encouraging corporations to provide information on their corporate code of conduct and ethics. This can help investors determine whether the corporation's conduct is a gauge for good long-term results or a risk to their return.
As a rule, the board believes that companies that respect the environment, human rights, fair employee practices, community relations and otherwise act in an ethical manner tend to perform better over the long run. We as government wholeheartedly agree with that principle, but in recent months the board has shown that it is prepared to go further on these issues relating to public concern over its investment practices.
When allegations were raised that companies currently being helped with the CPPIB's investment portfolio were involved in the manufacture of anti-personnel mines, the board undertook its own investigation in the matter. After consulting the specific companies directly and conducting its own investigation through third party sources, the board has reported that it has not found any evidence to support these claims.
Moreover, the board told my colleague, the Minister of Finance, that, if one of these corporations it invests in were found to be conducting such activities in Canada or abroad, the board would sell its shares in this or any other corporation conducting this type of activity, pursuant to its policy on the social aspect of its investments.
The results of the board's investment strategy speak for themselves. In 1997, the Canada pension plan had a deficit of over $6 billion and many believed the CPP would not satisfy the needs of the next generation of Canadian workers. For the hundreds of thousands of Canadians reaching retirement age, this was hardly good news.
A little less than seven years later, the plan has undergone nothing short of a spectacular turnaround. The plan's reserve fund is currently worth more than $64.4 billion. What is behind this turnaround? Without a doubt, the decision to increase the contribution rate to 9.9% has a lot to do with it.
However, we must not underestimate the role of investment income from the board's activities in explaining the dramatic improvement of the plan's finances. Retired Canadians will be able to count on the CPP for many years to come. Despite equity and bond market fluctuations, the board's prudent investment strategy will continue to pay dividends to Canadians of all ages.
If current estimates prove correct, the reserve fund will reach $80 billion in 2007, and nearly $160 billion ten years from now. These figures support the statements of the Chief Actuary of Canada, who said publicly that the CPP is sound for at least the next 75 years.
This means that all the members, their children and even grandchildren can expect to receive the CPP benefits to which they will be entitled. In this uncertain world, this is a very remarkable achievement.
In conclusion, I want to quote the President and CEO of the Canada Pension Plan Investment Board, John MacNaughton, in a speech he recently gave to the Calgary Chamber of Commerce.
He said that no investment strategy is—or should be—written in stone, and undoubtedly further adjustmentswill take place over time in line with shifting market conditions and portfolio needs. For now, weare proud of what we have accomplished, and we are confident we can meet Canadians’expectations, fulfill our mandate, and keep our promise.
The promise is nothing less than the right of all working Canadians to collect pension benefits to which they are entitled, and to enjoy a comfortable and dignified retirement. They deserve nothing less.
For these reasons, I cannot support the motion of the member for Winnipeg Centre as written. However, I thank the hon. member for having raised this important question.