Jim Maloway

[Business of Supply, June 11th, 2009]

Madam Speaker, when the Liberals set up the Canada Pension Plan Investment Board back in 2007, they did not know at the time that it was going to turn out to be the disaster that it is. We see now that the annualized rate of return in investments since that group took over is only 4.3%. We could have done better if we had just stayed with government bonds, which we had for years and years before that.

I want to ask the member whether she thinks it is time for the Liberals to tell us just what they are going to do with this investment board. The last two speakers have indicated that they want to keep the board. That is a surprising answer when we see evidence that clearly indicates we should get rid of the board.

[Business of Supply, June 11th, 2009]

Madam Speaker, how does my colleague think we can improve the pension system in this country when every few years the government basically gives exemptions to people who buy new houses? On the one hand we tell people to save for their retirement, and then every couple of years in order to boost the housing industry the government allows people to use some of their RRSP money for a down payment on a house. In effect, that is working at cross purposes to the idea of having a pension.

There are at least two provinces, maybe more by now, that have introduced legislation, Saskatchewan being the first, to allow people to access their pension funds several years before retirement. They have to make an argument for it, but if they can make an argument, for example a medical argument, they are allowed to take the money out.

How can people possibly build up retirement savings when the government keeps allowing exemptions, such as we have seen and which I have just indicated exist?

[Business of Supply, June 11th, 2009]

Mr. Speaker, when I spoke earlier, after the previous member for the Liberal Party, I was in fact telling him that the government did the correct thing back in 1995 when it increased the contributions to the pension plan.

I was saying that the mistake at the time, as it turned out, was the investment board, and I asked the member to comment on that. At that time, markets were on the rise, and not only the federal government but also provincial governments were giving authority to their crown corporations to get into the equity side of things. That is something that had never happened before.

There have been rules on insurance companies over the years, which I think still exist. They are required to keep in fixed income investments a certain percentage of their funds, in fact, I think, all of their funds, to pay out claims. That is the way the world was up until that fateful time back in the period from 2005 to 2007, when the previous government set up this Canada Pension Plan Investment Board.

I was simply demonstrating to the other member that in fact, had we not set it up at all, we would have been $13 billion better off. If we just left the money in guaranteed investments over that period of time, we would have received a better return by $13 billion and not have had to set up the board and pay these excessive $300,000 and $400,000 salaries and $7 million a year benefits to a group of financial geniuses who got only a 4.3% return over those 10 years.

I just want to ask the member whether he would agree with that.

I was certainly not criticizing the former Liberal government for increasing the contributions, because I think that was a very good thing for it to do and I really applaud it for that. However, it should not have set up this Canada Pension Plan Investment Board.

[Business of Supply, June 11th, 2009]

Mr. Speaker, when we look at the facts, I think we have to conclude that the former government, in 1997, was correct to raise the contributions to the CPP, but the investment board idea was probably not such a good plan.

The Canada Pension Plan Investment Board was incorporated as a federal crown corporation by an act of Parliament in December 1997 and made its first investment in March 1999. As of March 31, 2009, the fund is currently at $105.5 billion.

When the Liberals set up the board, they told Canadians we could make higher returns on our savings in the CPP if we were to invest in the stock market and in private investments instead of government bonds. That has not worked out so well.

In 2008, the CPP lost $23.6 billion. In fact, the annualized rate of return since these great investment geniuses took over 10 years ago is only 4.3%.

That 4.3% has amounted to a total benefit of $23.8 billion over the past 10 years. Had the money simply been left in long-term government bonds, the fund would have been $13 billion more if they had left the whole thing alone in the first place. Without the fund, the plan would have earned $36.5 billion, as I said, $13 billion more.

The question is why not simply get rid of the board, go back to where we were before, and save $300,000 to $400,000 in salaries plus all these bonuses, the $7 million in bonuses that are paid on an annual basis? Why are we doing that? Why do we not simply go back to where we were in 1997?

[Business of Supply, June 11th, 2009]

Madam Speaker, I would like to ask the member whether he understands that defending the bonus of $7 million is in effect an abrogation of responsibility. It is something that has average Canadians shaking their heads at a government that basically fiddles while Rome burns.

It is nice of him to say that he does not really like it, but you are the government. What are you going to do to ask these people to give this money back and stop taking future bonuses? You know that the government can—

[Business of Supply, June 11th, 2009]

Madam Speaker, in my home province of Manitoba we have a public insurance corporation which, for its first 25 or so years of existence, was mandated to stay with fixed income investments. That policy was laid out by the NDP government that set up the corporation and that policy was followed by successive Conservative governments. No changes were made at all.

At some magical point about 10 years ago when the equities market started taking off, corporations such as the public insurance corporation were mandated to start looking at equity investments. That is about the same time the federal government made the same move.

All we are saying is that in retrospect, that was the wrong move. We should never have gotten out of the tried and true fixed term investments, GICs and bonds. We should go back to them.

In the meantime, the government should either replace the board or order those people to get out of equity investing, stop taking bonuses, and pay back the--

[Business of Supply, June 11th, 2009]

Madam Speaker, in the last 10 years the CPP fund would have made $13 billion more than it did if it had been invested in government bonds rather than in a diversified portfolio of equities, real estate and bonds.

Why are CPP investment managers being paid millions of dollars in bonuses based on any of the time periods, one year rolling, four years or ten years? They have not been producing value-added returns above risk-free bonds. In the past four years they have not achieved the returns required for long-term sustainability of the CPP.

David Denison earned a bonus of $2.3 million and the Conservative government said that there is nothing it can do about it. The government said that it should not interfere with investments made by the board. The rules are there so that the managers do not get influence on individual investments, but there is no rule against our making a rule saying that they have to invest in fixed term investments as opposed to equities. The government should look at making a broad rule stating that the board has to stay away from equities. I believe the government could actually replace the board if it wanted to do that.

[Business of Supply, June 11th, 2009]

Madam Speaker, I am looking at the bonuses page of the CPP Board executives. David Denison the CEO received $2,361,022 and three members of the board received equally high amounts. The government is abrogating its responsibility, saying it will send a letter to the board, chastising it.

Would the member suggest some stronger means? We know the government can be as tough on this file as it wants to be. It just does not want to take the action to get these members to give the money back. It is time it did.

[Business of Supply, June 11th, 2009]

Madam Speaker, I want to note that the market value of retirement savings held in employer-sponsored pension funds declined by $58.1 billion, or 6.7%, during the fourth quarter of 2008 to $810 billion. This was attributable mainly to a fall in the market value of stocks and equity funds, which, by the way, we would not have if they were in GICs and fixed-income funds. The drop followed a decrease of $82.7 billion in the third quarter, which is the largest quarterly decline in a decade.

In my own portfolio, which is somewhat smaller than the numbers that I am indicating here, I have an absolute increase. I have zero losses because of the meltdown last year, only because I resisted the urge to invest in equities over the last seven or eight years, although I was chased around by lots of salespeople whose duty, they thought, was to try to encourage people.

I think what we have here is a retail market that catches fire and feeds on itself. People who have interest in making money out of these funds, because it is all about making money, will go to people and say, “Your fund is not doing well because you have been sticking with GICs all these years. Look at the other funds that are getting ahead of you. You have to hire me, the manager, who will get you into all kinds of fancy financial instruments that will make up for what you supposedly have lost”. In reality, they have not lost anything, because at the end of the day when the market crashes, the fund that was high comes down to a low point.

One can play around with private funds but not with--

[Business of Supply, June 11th, 2009]

Madam Speaker, the problem here is the whole issue of the investments. The problem began several years ago as the stock market boomed. We started allowing pension funds and other government entities to invest in equities when in fact they should have been sticking to GICs and government bonds, and if the return was not high enough for the required payout, they could simply increase the contributions to make up the difference. The government allowed the managers to start investing in equities, and of course, that is the root of the problem. Everyone can make money in good times, but problems occur in bad times.

I can recall a few years ago when a New York newspaper, I believe it was, set up a contest between a monkey and a number of stockbrokers. I think the member may recall this. Over several weeks the monkey and the stockbrokers picked a basket of stocks. Over the course of a month or so, the monkey won. Three or four years later, the process was repeated and the monkey won for a second time.

That shows what can happen when professional stockbrokers are hired with huge salaries and given extreme bonuses to get better results. Statistically, a monkey can do just as well.

We know that investing in just basic GICs might not provide great returns over the long haul, but at least the capital base will still be intact at the end of the day. That is the safest way to go.

We have a public insurance corporation in Manitoba. Just four or five years ago the Conservative government started allowing the corporation, for the first time in almost 30 years, to invest in equities. I guess right now they probably have some very bad results on their books because of that.