Investing for Gen Squeeze: the CPP Investment Board
The CPP Investment Board shows how Canadians adapted the CPP to reduce risks to intergenerational fairness starting in 1997. As governments negotiate a new fed/prov Health Accord, is it time to ask why funding for health care hasn't adapted to to the same risks?

The number of workers relative to retirees is shrinking dramatically in Canada.  These demographic changes create novel challenges for younger Canadians to support retirement income security and medical care for an aging population, while we earn less for full-time work and face far higher housing costs. 

Whereas health care policy makers have been reticent to address risks to intergenerational fairness, the Canada Public Pension (CPP) has been more boldly adapted to ensure it works for all generations well into the future.  In this blog, Tara Perkins, Director of Stakeholder Affairs at the CPP Investment Board (CPPIB), showcases how the CPPIB invests on behalf of Canadians, and has played a key role in ensuring that the CPP is sustainable to 2088 and beyond. 


On February 25, 1995, The Vancouver Sun ran the following headline about the Canada Pension Plan: “Wiped-out pension plan seen by 2016.” And yet, here we are, in 2016, with the CPP Fund amounting to more than $278 billion and deemed to be sustainable until at least 2088.  The Canada Pension Plan Investment Board, the organization that I work at, is a significant part of that story.

A bit of history: the CPP was created in 1966 to provide a foundational retirement income for Canadians. What wasn’t foreseen at the time was how quickly factors that impact pension plan funding, including demographics, would change. The emergence of birth control in the 1960s and changing societal views resulted in lower birth rates. As a result of that, and other factors, the ratio of workers supporting each pension-receiving retiree was falling. This trend continues, and it’s expected that in 2025 there will be three workers for each retiree, compared to the more than six workers that were supporting each retiree in the 1960s. In addition, Canadians are living longer.

As a result of these demographic changes and trends, serious concern arose about the long-term sustainability of the CPP in the late 1990s. In 1997 Canada’s provincial and federal governments came together and took steps to ensure that the plan would be sustainable for generations to come. These included increasing contribution rates and creating the Canada Pension Plan Investment Board (@CPPIB) as an independent organization to invest the assets of the CPP not currently needed to pay benefits. If these steps had not been taken, the problem would have been worse for future generations. A key principle of the reforms was “improving intergenerational equity,” according to a report by Canada’s Office of the Chief Actuary.

Purpose and Performance
CPPIB’s purpose, which is enshrined in legislation, is to maximize returns without undue risk of loss. In other words, our objective is to earn strong returns to help ensure the CPP is there for you – and your children, and your children’s children. We don’t want a repeat of the crisis in the 1990s.

Our 10-year net real rate of return (that’s after all CPPIB costs, and taking into account inflation) sits at 5.5%, comfortably above the 4.0% that Canada’s Office of the Chief Actuary assumes when he says the CPP is sustainable for the long term. More than half of the CPP Fund’s current assets are now from CPPIB’s investment income, with the remaining portion being contributions from employees and employers. 

Long-Term Investing for Gen Squeeze and Others
Canada’s oldest company, the Hudson’s Bay Company, is 346 years old; Canada’s oldest bank, the Bank of Montreal, is 199 years old; CPPIB, in contrast, is a relatively young organization. While we are young, we are looking to the future because we are investing for numerous generations of Canadians. We’re passionate about long-term thinking. In 2013, CPPIB, along with international partners, launched Focusing Capital on the Long Term, an initiative to encourage our peers in the investment and business worlds to stop emphasizing short-term profits at the expense of creating long-term value in their companies and the economy.

Long-term investing requires us to have a highly diversified portfolio so our contributors and beneficiaries aren’t overly exposed to any single market. In other words, we spread our eggs across many baskets. Canada is a small part of the global economy, and so roughly 80% of our investments are outside of the country to ensure that we’re not overly exposed to our home market. In this way the Fund can benefit from positive global growth in the world’s largest investment markets – and be resilient during periods of slow growth in Canada. In order to compete, we have been diligently building our global capabilities and securing the talent needed to succeed in highly competitive markets.

You might not know that you, the CPP Fund’s contributors, co-owns Neiman Marcus, a specialty
department store in the U.S., or Dorna Sports, a sports management company in Spain. To make the
most of our exceptionally long investment horizon, we often buy assets that we plan to hold for decades
such as commercial real estate like shopping centres and infrastructure like toll roads and ports.

Today, more than 20 years after The Vancouver Sun article that I mentioned at the outset, Canadians
can rest assured that the CPP Fund will be there for generations to come.

Tara Perkins, Director of Stakeholder Affairs at the Canada Pension Plan Investment Board

Ryan Vandecasteyen
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Investing for Gen Squeeze: the CPP Investment Board
Investing for Gen Squeeze: the CPP Investment Board
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