Tuesday, April 28, 2015

Canada pension plan

The pressure is on and the attacks continue on the Canada Pension Plan (CPP).  A report says administrators are hiding the fact that the cost of running the Canada Pension Plan has more than tripled since 2006 because of transaction and external management fees.

The Fraser Institute report says proponents of an expanded CPP or a provincial pension plan in Ontario don't talk about the hidden costs of large, government-managed plans.

Philip Cross, co-author of the study and a former chief economic analyst for Statistics Canada, says the total cost of running the CPP jumped to $2 billion in 2012-13, from $600 million in 2006-07.

Canadians should be informed of the total costs of the CPP’s operations and the total costs involved in its increasingly complex investment strategy,” Cross and Emes wrote in their report.

The report failed to mention that both of those figures already are available to anyone with an interest and an internet connection. They have been for years.

CPPIB discloses all of its costs in its annual reports. The publication breaks out spending by external management fees ($947 million in FY2014), transaction costs ($216 million), operating expenses ($576 million), and compensation for seven executives (CEO Mark Wiseman earned $3.6 million), among other spending categories. Likewise, CPP’s annual reports give a full accounting of the cost of administrating Canada’s $288 billion pension system ($490 million).

Still, the highest-rated feedback—by far—asked, “In all that talk, I didn't see the most pertinent question answered: Relative to the performance of a passive system, adjusting for all costs and fees, does the current system beat (or not beat) the return?”

Once again, CPPIB has the disclosed the figures and Cross has done the arithmetic. Since the reference portfolio’s 2006 inception, active strategies have generated an excess $5 billion. Subtract all the fees—administrative plus investment—and Canada’s pensioners finish $3 billion richer.  So costs may be high, but the return is also high. The attacks are from a perspective that wants the government fund to fail, but it is routinely doing better than most private sector pension plans. The success of the program must be galling for those who want to downsize and privatize pensions for Canadians. 

One of the main resources Canadians rely on is the Canada Pension plan, and as long as it continues Canadians who have worked will have income when they retire.

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