` Columbia Journal - CPP Commentary
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CPP Commentary
BY TOM SANDBORN - Some days, I wish that newspaper stories came with warning labels like the ones on rental videos. You know the ones- "Caution- entirely concerned with sex and violence" or "Careful- Teen comedy- far too gross for anyone other than 12 year old boys. " I could have used a warning before I read the story in my local paper last month headlined "CPP GETS FREER HAND ON INVESTING". Tucked away unobtrusively on page five of the business section, this little horror story should have carried the cautionary label "Too Scary: Don't Read if You Want to Sleep Tonight, or Hope to Retire Before 85".

Here's the story, so far as I could make it out through my sudden panic attack. The Federal government is planning to shift almost all the assets of the Canadian Pension Plan( over $125 billion dollars by 2012) to a little known body called the CPP Investment Board .Then the plan is to remove almost all previous limits set by the law that established the board in 1997 on what kinds of gambles it can take on the stock market with our pension money.

Is this because the Investment Board has done a stunningly better job at making our collective savings for old age grow, as compared to the ultra-conservative bond investments that have been the traditional spine of CPP funding? Well no, it turns out. In fact, the whiz kids who run the Investment Board managed to lose an accumulated 86 million dollars since 1997, during the biggest stock market boom in history. In 2000 the fund lost more than $851 million, and even the rebound earnings for last year only amounted to 3.4% increase, while bonds would have brought the CPP 5.7% in returns. In a baffling defiance of fiscal prudence, the managers at the CPP Investment Board now mean to move the money they manage for Canadian pensioners out of bonds, safer and, so far, more profitable, into equities, where the risk of loss is much greater.

So this reckless decision to dump almost everything in CPP coffers into the casino atmosphere of a profoundly compromised equity market ( Can you say Enron? or Arthur Anderson or WorldCom, or Vivendi?) isn't a reward for stellar performance. It is, at best, an act of religious faith, a burnt sacrifice that will make them happy down at the Fraser Institute and other temples of the Market Almighty, but should make the rest of us very nervous indeed, unless, that is, we're among the small number of brokers and money managers who will take away big fees from all this churning of our pension savings through the market.

It gets worse. While I was still brooding about the prospect of a board of bankers and investment professionals, who will never themselves be dependant on the CPP, gambling with our pension money in a market that shows every sign of getting ready to make 1929 look like a minor adjustment, I came on another news item that cried out for a warning label. This one, in the Financial Post, reported that the CPP Investment Board now plans to pay outside firms "performance bonuses" over and above basic fees if they win big profits with their investment decisions with CPP money. Even the Post, hardly a severe critic of market-friendly measures, headlined this item "INJECTS RISK INTO PORTFOLIO-Managers may take chances in pursuit of big payout."

Call me a fretful old man, but the decision to respond to heavy losses by putting more money into the game where we're already behind sounds to me like the internal logic of addictive gambling, not shrewd money management. This is a decision that makes as much sense as withdrawing all your savings bonds and investing them in lottery tickets. No, to be fair, to make the analogy exact you should buy some lottery tickets and some scratch and win tickets. That's what the captains of the financial industry like to call a balanced portfolio. Of course none of those clever folks mean to spend their last decades eating cat food in basement suites, or waiting forlornly beside the mailslot for a pension cheque that never comes. That could be the future in store for ordinary working Canadians who have contributed to the CPP for decades, and are kind of attached to the idea of a little reliable pension income during our retirement, not the uncertain and unreliable outcomes from world history's biggest floating crap game.

John McNaughton, the President and CEO of the CPP Investment Board, isn't worried. In the Board's most recent annual general report, he reassures us that "We have to assume some risks to earn higher returns over the long run. In our view, equities should outperform bonds over the long term and more than compensate for the extra risks assumed."

Easy for you to say, Mr. McNaughton. With all due respect, neither you nor the other well paid financial wizards on your board will be hurt much if the reckless gambles with our pension money end up a disaster. McNaughton was paid $363,650.00 in salary last year, plus over two hundred thousand dollars in bonuses and over $50,000.00 in benefits. He should be able, out of this bounty, to set aside a little for retirement, no matter what happens to the CPP crap shoot he is responsible for. As for the rest of us, maybe we should invest in cat food. If this outrageous giveaway to the investment houses is allowed to continue, that's what a lot of Canadian seniors are going to have to live on in the future.




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