It might not be so bad. It’s voluntary and so some people won’t bother with it and it focuses on those with no pension/RRSP which I would bet is mostly those under the average income.

Hence it likely won’t be huge amounts of cash to add to the pile. Also the CPP would likely expand investments more outside of Canada. After all we are such a small part of the world markets. So nationalization is likely not a huge problem.

My thoughts,
Tim

What it could lead to, should the CPP get large enough, is defacto nationalisation. If the CPP has too much money, sinking $100 million into a company may represent less than 1% of funds, a level too small to be meaningful in producing returns. At that point, the CPP will either end up buying controlling stakes in companies (nationalising them), or be forced to buy only bonds and real assets, including real estate, infrastructure, timberland, resource royalties, etc.

I’m not sure that’s the direction we want our government to take.

I still think it would take a long strike to get that change but it’s doable.

Mike

Robert – An interesting idea to roll things over into CPP. Also a bit dangerous as you pointed out. The politically advantage as being separate funds right now keeps people for trying to change too much at once. Also over loading the CCPIB might not be a good idea. Excessive amounts of cash are hard to find good investments for, especially if you increase it to those levels. Also there is the issue that OAS comes out of current funds, while CPP is trying to bank up before expanding (see comments on yesterday’s post for details). The two don’t mix well.

Thanks for the feedback,
Tim

You’d have to shut the country down for a year or so to make that happen.

I’d add that if the CPPIB is really as smart as they say, they should be able to manage the funds effectively, so that there is no unlimited liability in the CPP. All CPP pensions are fully funded, using actuarial assumptions (for better or worse).

If you switch government employees from DB to DC, your simply shifting the market risk from taxpayers to the employees. However, CPPIB says they have that covered.

I’m intrigued by the idea of adding an optional component to CPP. You have no choice but to fund (with your employer) up to YMPE. After that, you and/or your employer could contribute more and benefit from the expertise of CPPIB. The government should definitely use CPPIB to manage their pension funds.

Further, I would like to see OAS, GIB and other income programs for seniors rolled into CPP. For example, you have to do nothing but live in Canada for 40 years to receive OAS and a CPP minimum benefit could replace OAS, funded by the government. This would be more sustainable, but there would still be errors in projecting the number of seniors in the future and the number who have low income. Still, it would be an improvement over pay-as-you-go.

Benefits would include: no bankruptcy risk, affordable management due to economies of scale, administration is already in place for withholdings, simple to opt-in.

Drawbacks include: CPPIB isn’t infallible, as we saw last year, putting that much money in people’s control isn’t ever a good idea, government bureaucracy could complicate the administration, politics could affect the fund.