Mr. Speaker, in his motion the hon. member for Winnipeg Centre argues that the Canada Pension Plan Investment Review Board should not be “contrary to Canadian values”. We on this side of the House also agree. If the hon. member even took a furtive glance at the Canada pension plan of today and the investment board which manages an increasing portion of its portfolio, he would quickly discover a program that fully meets the values of an aging Canadian population.
The first value is security. On this priority we have come a very long way from the uncertainty of over a decade ago. In the early 1990s the chief actuary of Canada warned that the CPP's assets, the equivalent of two years of benefits, would be depleted by the year 2015 and that contribution rates would have to increase to more than 14% by 2030 if the plan remained exactly as it was.
Those concerns needed to be addressed. Future generations of Canadians, including our children and grandchildren, needed assurance that the plan would be there for them at a cost that would not overwhelm them as well.
Indeed, the government responded. In February 1996 the federal and provincial governments announced that joint cross-country public consultations would be held on the Canada pension plan to find out what Canadians, the Canadians the hon. member refers to in his motion, wanted to see done.
What did Canadians want? They wanted their governments to preserve the Canada pension plan by strengthening its financing, improving its investment practices and addressing the growing cost of its benefits. As a result, in 1997 the federal and provincial governments adopted a balanced approach to CPP reform so that the plan could meet the demand of the coming years and when the baby boomers would be retiring.
Changes to the plan included limited changes to benefits and their administration, a moderate increase in CPP contribution rates and the building up of a larger asset pool while baby boomers were still in the workplace. The asset pool would be invested in financial markets and managed at arm's length from the government for the best possible rate of return.
All together these measures ensured that a contribution rate of 9.9% would be sufficient to maintain sustainability of the plan indefinitely. These reforms, which were endorsed by federal and provincial finance ministers seven years ago, will help ensure that Canadians have a pension plan on which that they can rely.
I am pleased to say they certainly can. The Chief Actuary has repeatedly confirmed the long term viability and financial sustainability of the CPP. Last year in fact he estimated the CPP, in its current form, was sound for at least 75 years.
I should stress that this long term sustainability comes at a time when other nations now face the harsh reality of significant pension plan reform. The World Bank in fact has offered high praise on Canada's current CPP system as a model for other countries to adopt. I trust the hon. member for Winnipeg Centre can take great comfort in this international recognition.
However, there is another Canadian value that the government has addressed in its commitment to creating a durable pension plan. That value is independence. Canadians must be assured that their retirement savings will be managed prudently and responsibly and not subject to the changing political winds of the day. The government has ensured that this will not happen.
A new market investment policy to be implemented by an independent organization, the Canada Pension Plan Investment Board, was a vital element of the CPP reform. The Canada Pension Plan Investment Board was set up in 1998 and began operations the following year.
Before the CPP Investment Board was established, the CPP's investment policy dictated that all funds not immediately required to pay benefits and administrative costs had to be reinvested in provincial government bonds at the federal government's interest rate. This represented an undiversified portfolio of securities and an interest rate subsidy to the provinces. In other words, the retirement nest egg of Canadians was not working for them so the government once again responded with the CPP Investment Board mandate to invest in the best interests of CPP contributors and beneficiaries and to maximize investment returns with undue risk of loss.
The CPP Investment Board reflects a fundamental policy change in investing CPP funds. Today CPP funds that are not needed to pay benefits and expenses are transferred to the CPP Investment Board and prudently invested in a diversified portfolio of market securities in the best interest of Canadian contributors and beneficiaries and not governments.
For example, it operates under similar investment rules requiring the prudent management of pension plan assets in the interests of plan contributors and beneficiaries. It is free to hire its own independent professional managers. It is subject to foreign property rules just like other pension funds.
This brings up another value. Canadians have made it clear that this value is accountability. For a moment I would like the hon. member to consider the diverse ways the CPP Investment Board informs Canadians of its operations, investments and its policies.
First and foremost, it makes all of its investment policies and financial results public. Second, it releases quarterly financial statements. Third, it publishes an annual report which is tabled in Parliament. Fourth, it holds regular public meetings in each participating province at least every two years to allow for public discussion and input. Fifth, it communicates all of this on a very informative website. It is a very useful site and I would encourage the hon. member to visit it and to visit it often.
Full accountability is also assured through a robust process with strong checks and balances that is in place for identifying and appointing CPP Investment Board directors. Individuals who sit as directors have extensive business, financial and investment expertise. I am pleased to say that the independence and quality of the CPP Investment Board of directors has received strong support from both public and pension management experts.
Federal and provincial governments are currently completing the final steps of the CPP reform launched in 1997, transferring all the remaining CPP assets managed by the federal government to the CPP Investment Board over a three year period. This consolidation will put the CPP on the same footing as other major public pension plans, providing fund managers with the flexibility to determine the best asset mix and investment strategies to manage risk and optimize returns.
Analysis undertaken by the Chief Actuary of Canada indicates the CPP assets fully invested in the market will be expected to earn a greater return and grow more rapidly for the benefit of present and future CPP contributors.
Now this brings up another value that I believe all Canadians hold dear. It is one I certainly demand, and that is results.
Let us look at how CPP assets in fact are performing. As a future recipient of CPP benefits, I think the hon. member for Winnipeg Centre will be pleased with its performance.
During the nine months ending December 31, 2003, assets available to the Canada pension plan earned $8 billion, producing a rate of return of 13.9%. That is all CPP assets, including the $35 billion in fixed income securities currently administered by the government. During the same period, the portfolio managed by the CPP Investment Board earned a return of 26%.
In light of these results, I would like the hon. member to consider two things. First and foremost is the solid performance produced in this year and in previous years by the CPP Investment Board during one of the most turbulent markets in recent history. The other is what Canadians would have sacrificed had their retirement savings been held completely and exclusively in low return government bonds at a time of historically low interest rates.
In a recent speech to the Calgary Chamber of Commerce, CPP Investment Board president and CEO, John McNaughton, referred to a Canadian proverb that says simply, “The path to success is paved with good intentions that were carried out”.
For the 16 million Canadians who contribute to and benefit from the Canada pension plan, their retirement program today is exactly that. For those who cherish the Canadian values of security, independence, accountability and performance, the reforms made to the CPP leave them with much of which they can be proud.
I believe that hon. members on all sides of the House and Canadians who work a lifetime to ensure a brighter future for themselves and their families can take great satisfaction in that.