Canada Pension Plan: Overview, History and Debates
Two key aspects of Canada’s welfare state involve: a) encouraging citizens to save for their retirement income, and b) reducing poverty among seniors. In this context, the Canada Pension Plan is a central pillar of Canadian social policy. This article provides an introduction to the Canada Pension Plan, commonly known as the CPP, and includes a general overview of the plan, its position within the larger Canadian system of retirement income, its historical development, its administration, and key contemporary debates and issues.
A pillar of Canada’s retirement income system
Canada’s system of retirement income: an evolution
An overview of key actors and structures associated with the CPP’s administration
Mandatory contributions and ethical investing
List of article sources and links to more on this topic
What is the Canada Pension Plan?
A pillar of Canada’s retirement income system
Overview of the Canada Pension Plan
The Canada Pension Plan (CPP) is characterized by a number of key elements:
First, it is a universal public retirement income plan. The CPP is a joint federal and provincial scheme (Quebec excepted) which is administered by the Government of Canada and covers all eligible Canadians, regardless of where they live. The Canada Pension Plan is one part of a multi-dimensional system that includes tax-funded benefits, low-income benefits, employment-based pensions, and private tax-assisted savings for retirement.
Second, the CPP is a contribution plan based on an individual’s employment. The CPP is not a direct subsidy for seniors, funded out of general government revenues. Instead, it is based on contributions made by employees, and their respective employers, over the course of an individual’s working life. As such, the CPP is directly tied to one’s employment and participation in the workforce. Moreover, as will be discussed in more detail later, while contributions form the basis of the CPP, the program does receive further revenue by pooling these contributions into a single fund for the purpose of investment.
Third: the CPP is a mandatory contribution plan. Employees and employers do not have an option to voluntarily participate in the CPP, but are instead required by law to contribute. This distinguishes the CPP from the public pension plans of other countries, such as Britain; there, individuals can opt out of contributing to a central plan in favour of other retirement income schemes.
Canada’s Retirement Income System
It’s important to situate the CPP within Canada’s general retirement income scheme as it is not the only mechanism for securing retirement income. It simply represents one element of a larger system.
Another important component is direct government subsidies to seniors for the purpose of securing a minimal standard of living. This includes the federal Old Age Security (OAS) and Guaranteed Income Supplement (GIS) and similar provincial programs which provide Canadians with a monthly payment to support the cost of living. Unlike the CPP, which involves contributions by employees and employers, these direct subsidies are paid through general government revenues and welfare programs.
A third component is private defined-benefit pensions, which provide members with a regular financial benefit at retirement, usually based on earnings and years of service with an employer. Many large companies, as well as federal, provincial and municipal public services, offer such pension plans to their workers.
A fourth component is private contribution-based savings plans. In some cases, these are formal plans, such as Registered Retirement Savings Plan (RRSP) or some other financial product which individuals contribute to independently or through their employers. In other cases, such retirement savings plans may simply consist of a personal cash account, or equity in property, a business, or some other asset.
History of the Canada Pension Plan
Canada’s system of retirement income: an evolution
Early Approaches to Retirement Income
In Canada’s early history, most seniors depended on their personal savings or their families for retirement income. At that time, the retirement income system operated in a Canadian economy that was largely rural and based on trades, small businesses, and agriculture. As such, seniors would pass their small businesses or farms to their offspring; their offspring, in turn, would care for their parents in their retirement. While private workplace pensions became available in the late 1800s/early 1900s, they were far from widespread and tended to be concentrated in particular industries, such as the railroads.
Federal policy in the area of retirement income stretches back over 100 years, with the introduction of the Canadian Government Annuities Act in 1908. The purpose of this legislation was to encourage Canadians to purchase government annuities as a means of saving for retirement. This program resembled the modern Canadian Registered Retirement Savings Plan (RRSP). Individuals would purchase financial assets; these assets, in turn, would pay out regular benefits upon the individual’s retirement from the workforce. Under the Act, the federal government guaranteed these benefits and assumed all costs associated with their administration.
In the 1920s, retirement income became a public issue due to a number of factors. The process of industrialization and urbanization during the early 1900s placed economic pressures on the older generation, as new employment favoured the young and jobs traditionally performed by older workers disappeared. Consequently, poverty among seniors expanded greatly — a development the federal annuities program failed to address in any significant manner, as few seniors could afford to buy into the plan.
As a result, many activists and parliamentarians, such as James Woodsworth and Abraham Heaps, called for the reform of retirement income policy — and, in particular, the introduction of a national pension scheme. Under such proposed reforms, seniors would be guaranteed a minimum income through regular benefits provided by the state.
Introduction of Old Age Pension Plan
In 1927, the federal government introduced the first Old Age Pensions Act, establishing a national pension scheme — though the Act came about because of political opportunism. In 1926, the Liberal Party, helmed by William Lyon Mackenzie King, was elected to a minority government. James Woodsworth and Abraham Heaps, Members of Parliament for the Co-operative Commonwealth Federation (CCF), a precursor to the modern-era New Democratic Party, agreed to support King’s Liberal minority in exchange for creating a national pension scheme.
The new pension scheme was jointly financed by the federal and provincial governments, but administered by the provinces. This was because, at the time, pensions were under the constitutional jurisdiction of the provinces. A relatively modest program, the new pension scheme sought only to provide benefits to the poorest seniors. The maximum pension provided was $20 per month and $240 per year, and was made available to all British subjects over the aged 70 or older who had lived in Canada for 20 years (though Status Indians were excluded). The pension, however, was limited to seniors whose annual income was less than $350.
The scheme applied a means test in determining eligibility and precise benefits. According to this test, provincial authorities calculated all aspects of a senior’s income, including pensions, income from property, and the value of “perks” they received from organizations and family (such as free room and board). If the calculated annual income was more than $350, then the individual was not eligible for an Old Age Pension. Those that fell below this threshold, however, were only entitled to benefits that would take them to $350 (to a maximum of $240 per year). The test did not take into account how much money an individual needed to afford basic necessities, such as food, shelter, and clothing. As provincial authorities used great discretion in calculating annual incomes, what resulted was a system in which eligibility for benefits varied greatly from one province to another.
The issue of seniors’ poverty persisted, even with the introduction of the Old Age Pension. The Great Depression of the 1930s hit all sectors of the population hard. With the economic improvement following the Second World War, seniors faced the problem of inflation and declining real incomes, due to the fact that their Old Age Pensions were tied to minimum income levels rather than the cost of living. This period saw little in the way of reform, though the pension plan was expanded to include some disabilities, such as blindness. In the 1950s and 1960s, however, there was significant reform.
During this period, the Canadian Constitution was amended twice in the area of pensions. In 1951, the Constitution was changed to allow the federal government to operate old age pensions. It was amended again in 1964 to extend federal jurisdiction over supplementary benefits, such as survivors’ and disability benefits. It is important to note, however, that these amendments did not provide the federal government with exclusive authority in the area of pensions. Instead, they established pensions as a concurrent jurisdiction, with provincial paramountcy ―an approach where both levels of government legislated in the area of pensions, but provincial legislation is paramount insofar as no federal plan could affect the operation of any present or future provincial plan.
Accordingly, in 1951, the federal government introduced the Old Age Security Act, which provided a universal pension plan to Canadians, referred to as Old Age Security (OAS). Under the new scheme, all Canadians aged 70 or older (and with more liberal residency requirements) were eligible for a taxable benefit of $40 per month. With this new scheme, the means test was dropped, allowing seniors to collect the same benefits regardless of their other income or assets. At the same time, the federal government also introduced the Old Age Assistance Act. It provided a needs-tested (as opposed to means-tested) pension of $40 per month to retired Canadians aged 65 to 69. This program was cost-shared by the federal and provincial governments on a 50-50 basis, and administered through provincial welfare departments.
Introduction of the Canada Pension Plan
In 1965, the federal government further reformed the public pension regime when it introduced the Canada Pension Plan (CPP). The CPP did not replace Old Age Security, but was implemented as a complementary measure. The CPP differed significantly from the OAS in that the OAS was a direct benefit paid through general government revenues. The CPP, by contrast, was a compulsory social insurance plan, in which employees and employers contribute towards a wage-related retirement pension, and included long-term disability and survivors’ benefits. When it was first introduced, the CPP covered approximately 92 percent of the labour force and was designed to replace 25 percent of the average industrial wage.
- See the What is the Canada Pension Plan? section of this article for more information on the differences between CPP and OAS.
As a social insurance plan based on contributions, the Canada Pension Plan was not designed to pay full retirement benefits until 10 years after its introduction. In the meantime, the federal government amended the Old Age Security Act by introducing a tax-free, income-tested supplement for seniors with little or no other income. Referred to as the Guaranteed Income Supplement (GIS), the program was intended to be a temporary stop-gap measure to support seniors until the CPP was fully operational. During the 1970s, however, concerns were raised that the OAS and CPP were still insufficient as far as preventing poverty for all seniors. As a result, the GIS has become a full-fledged part of the retirement income system; since then its payout value has increased, and it has been indexed to the cost of living.
As discussed above, the constitutional amendments of 1951 and 1964 established pensions as a concurrent federal-provincial jurisdiction, but with provincial paramountcy. As a result, the provinces were entitled to reject the federal government’s CPP and establish their own contribution-based pension scheme. However, only the Province of Quebec has ever done so, creating the Quebec Pension Plan (QPP) in 1965/66, which is similar to the CPP in most respects.
Reform of the Canada Pension Plan
Since its introduction in 1965, the CPP has undergone a number of key reforms. Between 1966 and 1986, reforms included introducing a full annual cost of living indexation for benefits; ensuring availability of the same benefits for surviving spouses, common-law partners and dependants (children); eliminating earning tests for early retirement benefits; and dividing pension credits (known as credit splitting) between spouses in the event of a marriage dissolution.
In 1987, another package of CPP reforms was implemented. It included the introduction of a flexible retirement benefit, allowing retirees to begin collecting their benefits as early as age 60; a substantially increased disability pension; a provision that would allow continued issuance of the survivor’s benefit in the event a surviving spouse remarried (previously if the survivor remarried s/he would lose the CPP benefits of his/her deceased spouse); and expansion of the system of credit splitting to cover the separation of married or common-law partners. In 2000, survivor benefits were further expanded to include same-sex common-law relationships.
Beginning in the 1980s, the CPP’s financial sustainability became a key issue due to a convergence of factors, including increases in the life expectancy of the Canadian population, and a large, aging baby boom demographic that would soon be retiring (meaning more people would be drawing on the retirement system and fewer would be contributing). Accordingly, the concern was for the long-term viability of the CPP and its ability to provide meaningful benefits in the future.
While this issue was recognized in the 1980s, little action was taken due to a lack of political will. It wasn’t until 1998 that the federal government and the provinces agreed to make substantial reforms to the program to address the issue of its sustainability. Under the reforms, CPP contributions by employers and employees were significantly increased to provide a stronger revenue base. Additionally, the Canada Pension Plan Investment Board was established to invest those funds that were collected but not immediately required (for payout of benefits).
As a result of these reforms, the CPP moved away from a “pay-as-you-go” basis, where contributions were set at a level that would accommodate pension payouts and provide a contingency fund of two years’ worth of benefits for all eligible Canadians. (Under the previous system, any surplus was automatically loaned to the provinces.) Under the new reforms, the CPP moved to a “partially funded” model, accumulating a larger fund of approximately five years’ worth of benefits. In turn, these monies are subsequently invested more broadly by the Canada Pension Plan Board to achieve a better rate of return ― meaning that the funds are not simply sitting “parked” somewhere, but are accruing value.
T hese reforms significantly improved the financial sustainability of the CPP, such that in 2007, the federal Office of the Chief Actuary released a report on the CPP, which concluded the CPP will be financially sound over a 75-year period. It also found that between 2007 and 2019, CPP contributions will be more than sufficient to cover benefits. After 2019, a portion of the CPP’s investment income will be needed to make up the difference between contributions and expenditures. That said, the economic recession of 2008-09 did impact the CPP. In February 2009, the CPP Investment Board reported a decline in the fund, of $13.8 billion for the nine-month period ending December 31, 2008 (CPPIB, February 2009). By September 2009, however, the board had reported a sharp increase in the fund’s value, which regained the value it lost during the recession (CPPIB, November 2009).
Administration of the Canada Pension Plan
Overview of key actors and structures associated with the CPP’s administration
Legislation Governing the Canada Pension Plan
The Canada Pension Plan is governed by two key pieces of legislation. The Canada Pension Plan is federal legislation which sets out the basic framework of the scheme, including calculation/collection of contributions and calculation/payment of benefits. As far as the CPP’s administration, the Act sets out ministerial responsibility and authority, administration of CPP records, protection of personal information procedures, reciprocal agreements with other countries, and a system of parliamentary review.
The second key of piece of federal legislation governing the retirement income system is the Canada Pension Plan Investment Board Act, which sets out the basic framework of the CPP Investment Board, responsible for managing the CPP fund and its portfolio. This includes its basic constitution and organization, mandate and powers, and systems of review, auditing, and reporting to Parliament.
Department and Agency Responsibility for the Canada Pension Plan
A range of federal government departments and agencies are responsible for the CPP’s administration:
- Generally speaking, Human Resources and Skills Development Canada (HRSDC) is primarily responsible. Service Canada, on behalf of HRSDC, is responsible for administering the application for benefits and their delivery to Canadians. HRSDC is further responsible for policy design and research relating to Canada’s public pensions, including both the CPP and the OAS. HRSDC is also the lead department responsible for negotiating international social security agreements, so individuals can qualify for benefits in Canada or abroad.
- The Canada Revenue Agency (CRA) is responsible for collecting and recording CPP contributions. In so doing, the CRA assesses and verifies earnings and contributions, advises employees and employers of their rights and responsibilities, and conducts audits. The CRA also applies a compliance and enforcement process to ensure employees and employers meet their CPP responsibilities.
- The Canada Pension Plan Investment Board is responsible for investing CPP funds. The Board is an independent, professional investment management organization with the mandate to invest CPP funds in a way that maximizes returns without undue risk of loss. The Board was created in 1997 as a crown corporation, and made its first investment in 1999. Under the Canada Pension Plan Investment Board Act, it is intended to operate at arm’s length from federal and provincial governments to ensure minimal political influence in its investment activities. An independent board of directors is responsible for overseeing the Board, hiring staff, and approving investment policies. Changing the legislation governing the Board requires the cooperation of stewards, comprised of federal and provincial finance ministers (excluding Quebec). It also requires agreement between the federal government and two-thirds of the provinces representing two-thirds of the population.
- The Office of the Chief Actuary (OCA) is responsible for conducting independent verifications of all federal government public pension plans. This includes the CPP, Old Age Security, and public service pension plans (the OCA also undertakes reviews of the Canada Student Loan Program). In particular, the OCA monitors current financial conditions and the future costs of the different pension plans, and provides reports regarding their financial viability. The OCA is also required to provide impact reports for any new pension plan legislation and to advise on the design, funding, and administration of any such plans.
Financial Organization of the Canada Pension Plan
The CPP is comprised of two accounts. The general CPP Account exists within the accounts of the Government of Canada. This account records the financial elements of the CPP, including contributions, interests, benefits paid, and administrative expenditures. The CPP Account also records the amounts transferred to or received by the CPP Investment Board. Spending authority for the account’s funds are limited to the CPP’s net assets, which include those monies not required to secure benefits in the short term. It also bears noting that CPP assets are kept separate from the federal government’s general expenditures and revenues.
The second key account is the CPP Investment Fund, consisting of monies transferred from the CPP Account to the Investment Board for the purpose of investment. This fund is managed independently by the board. Since September 2004, the CPP has transferred between $200 million and $1.2 billion to the board each week, and has received approximately $1.5 to $2 billion per month in returns (HRSDC, 2008).
Under this system, then, the Government of Canada is responsible for the CPP Account’s administration, which is limited primarily to its operating costs and the flow of contributions and benefits. The CPP Investment Board is responsible for managing all CPP investment assets.
Review of Canada Pension Plan Administration
Several mechanisms of oversight and review are built into the CPP system. Annual reports for both the CPP and the CPP Investment Board must be submitted to Parliament and the public, detailing their activities, finances, and future objectives. Both the CPP and the Investment Board are also subject to reviews by the Office of the Chief Actuary. Also, the board, is required to submit to an annual audit by an independent external audit firm, and may be subject to an audit by the federal minister of finance at any time.
Every three years, there is also an automatic review of the CPP and the Investment Board by the federal and provincial finance ministers. Commonly referred to as a Triennial Financial Review, the finance ministers take that opportunity to examine the financial soundness of the CPP and provide recommendations for future reforms.
Another type of CPP review comes in the form of government tribunals. Appeals of decisions regarding an individual’s benefits may be directed to Office of the Commissioner of Review Tribunals CPP/OAS. The Office is headed by a commissioner who is independent of Human Resources and Skills Development Canada (HRSDC). In addition, the Canada Revenue Agency has internal appeal processes where employees and employers may dispute decisions regarding their contributions.
Administrative Costs of the Canada Pension Plan
In the 2007-08 fiscal year, costs to administer the CPP were approximately $600 million (HRSDC, 2009). HRSDC, which is responsible for service delivery, research and policy development, accounted for the largest portion of that total, at $291 million. The Canada Revenue Agency, responsible for collecting contributions, required $140 million for its services, while the CPP Investment Board reported $154 million in operating expenses. Finally, the Office of the Chief Actuary accounted for $2 million of the total.
Canada Pension Plan: Key Debates
Mandatory contributions and ethical investing
Mandatory Retirement Income Scheme
One debate concerning the CPP centres on its mandatory provisions. Under the CPP, all employees and employers are obligated to pay into the system at rates set by government. Some critics, however, have argued that individuals and businesses should be allowed the flexibility to opt out of the government plan and design their own. Such positions tend to be grounded in more free-market conceptions of pensions, where citizens are free to choose their own level of retirement savings and the retirement products they wish to pay into. For those who support this view, mandatory government schemes represent “inefficient” or “coercive” programs which deny individuals this choice. During the late 1990s, when the federal government was addressing the issue of the CPP’s financial sustainability, the Reform Party of Canada (later the Canadian Alliance Party) advocated some measure of an opt-out clause based on these grounds.
By contrast supporters of a mandatory public scheme point to its benefits. They argue that such a scheme is better able to guarantee pensions over the long term as it has a broader base of revenues from which to operate. As everyone contributes to a public scheme, with contribution levels set to ensure long-term financial sustainability, this view holds that public plans are more likely to provide meaningful benefits in the long term. A related argument centres on the social justice of mandatory public schemes. Under the CPP, for example, there is a pooling of risk, where those of lower economic means are able to participate in a pension system which includes the contributions of those of higher economic means. This guarantees stable revenues and benefits for the plan as a whole. With an opt-out provision, it may be the case that those with greater financial resources decide to place their contributions in different retirement instruments, thereby leaving the public plan to be financed predominately by lower-income individuals. Under such a scenario, a public plan could come under extreme financial pressures and be forced to drastically reduce the benefits it pays out.
It is important to note, moreover, that this debate concerning the CPP cannot be made without referencing Canada’s retirement income scheme as a whole. While the CPP represents an important source of retirement income for many Canadians, it is only one small piece of the larger system. Individuals are completely free to purchase other retirement savings products in addition to CPP, and are generally encouraged to do so through government initiatives such as the Registered Retirement Savings Plan (RRSP). As such, the charge that CPP, as a mandatory retirement plan, eliminates choice seems somewhat weak. Nevertheless, one might argue that CPP contributions represent a significant portion of employee and employer retirement costs, and that individuals should be free to decide where to spend those funds.
CPP and Inequality in Retirement Income
The CPP helps ensure a minimum threshold of retirement income. Nevertheless, it does not ensure income equality between persons in their retirement. Instead, Canada’s retirement income scheme, of which CPP is an important element, permits (and even encourages) a growing disparity in this context.
As discussed earlier, Canada’s retirement income scheme is comprised of a number of components. Government programs such as the CPP (and the Quebec Pension Plan), Old Age Security (OAS), and the Guaranteed Income Supplement (GIS) provide Canadians with a minimum income for their retirement years. Many Canadians, however, further supplement these government programs with other sources of retirement income, such as private workplace defined-benefit pension plans and contribution-based personal savings plans. These supplementary retirement plans help ensure individuals can maintain a desired standard of living (above what government programs provide) when they stop working. A defined-benefit pension promises a regular financial benefit at retirement and is typically based on earnings and years of service with an organization. A contribution-based personal savings plan, by contrast, delivers a retirement income based on how much an individual has contributed and the levels of investment returns on those contributions. An example of such a plan is the Register Retirement Savings Plan (RRSP).
It is commonly argued that a defined-benefit pension plan is preferable to a contribution-based savings plan. This conclusion is based in part on the recognition that the average individual lacks the information and willpower to adequately plan, save, and invest for his/her retirement (Ambachtsheer, 2009; Pierlot, 2008). As such, a self-managed personal savings plan, such as an RRSP, often fails to provide individuals with their desired standard of living upon retirement. A defined-benefit pension plan, by contrast, is highly beneficial in this context. Pension plans allow for “autopilot” savings, where individuals automatically save for retirement through set contributions. Such plans are also managed by professionals who have better information and knowledge from which to plan and manage/ invest an individual’s contributions.
Another commonly cited reason why a benefit-defined pension plan may be better than a contribution-based plan stems from government tax rules (Pierlot, 2008). Under the federal Income Tax Act, for example, individuals can only contribute up to 18 percent of their annual earnings to a contribution-based savings plan (such as an RRSP) without penalty. Under a defined-benefit pension plan, however, individuals can contribute much more ― up to 40 percent of their earnings in their late career. As a result, a defined-benefit plan potentially enables individuals to save considerably more for retirement than a contribution-based plan. Finally, with a defined-benefit pension plan, individuals are not as vulnerable to sudden drops in their retirement income due to fluctuations in stock and equity markets. This is because defined-benefit plans have the capacity to pool risk among their contributors, and to manage short-term drops in investment markets without having to lower benefits for members.
While defined-benefit pensions are commonly recognized as preferable, Canada’s pension scheme tends to create unequal access to such pension plans (Ambachtsheer, 2009; Pierlot, 2008). Part of this inequality is because private sector employers are becoming increasingly reluctant to sponsor defined-benefit pension plans due to such factors as funding risk, accounting treatment of pension obligations, and uncertainty about ownership of pension surpluses. As a result, while 80 percent of Canada’s public sector workers have access to a defined-benefit pension plan, only 30 percent of private sector workers have such plans (Pierlot, 2008).
Government rules concerning benefit-defined pensions further contribute to this inequality of access. In Canada, for example, individuals are only permitted to participate in benefit-defined pensions sponsored by their employers, be it in the private or public sectors. In turn, this makes pension plan participation a practical impossibility for self-employed workers (as they do not have an employer), and for employees of small- and medium-sized private businesses, which often cannot afford to establish benefit-defined pension plans for workers.
Bearing these factors in mind, several proposals for reform have been brought forth in recent years, some of which could have important implications for the Canadian Pension Plan overall (Ambachtsheer, 2009).
The first is the notion of reforming pension laws and regulations to allow for greater choice and flexibility in the products offered by the private financial industry. One example would involve allowing individuals and their employers to contribute higher levels of their earnings to contribution-based retirement savings plans, such as RRSPs. Another would be to eliminate the stipulation that individuals can only participate in defined-benefit pensions that are sponsored by their employers. As such, self-employed workers, and employees of small- and medium-sized businesses, could participate in collective pension plans offered by private financial institutions, such as banks and insurance companies.
A second proposal is the idea of greatly expanding the Canada Pension Plan, such that the need for supplementary private pension plans is eliminated. Under such a proposal, the CPP would provide a much larger earnings replacement benefit; approximately 70 percent of earnings adjusted for inflation. To ensure this benefit, however, contributions by employees and employers would need to be significantly increased. As is the case at present, participation in such a newly expanded CPP would need to be mandatory for all Canadian workers, and CPP funds would continue to be invested through the CPP Investment Board.
A third proposal for reform involves creating a voluntary public supplementary defined-benefit pension (often referred to as the Canada Supplementary Pension Plan). Contrary to the first proposal, such a pension would be a single program administered by government ― as opposed to multiple plans offered by private financial institutions. However, unlike the second proposal, such a scheme would not require an expansion of the mandatory CPP. Instead, it would involve creating a new pension plan to supplement the CPP, which all Canadian workers could participate in on a voluntary basis. As such, this plan could provide more modest earning replacement benefits than under an expanded CPP. It would also have added flexibility to enable individuals to opt out of the supplementary pension, if they so desired.
Canada Pension Plan and Ethical Investing
In exploring the Canadian pension scheme, another issue that arises centres on the nature and impacts of CPP investments. In 2000, the CPP Investment Board announced its intention to take a more active role in the management of companies in which it invests. To this end, in 2002 it announced it would invest in buyout funds that provided capital for acquisitions and restructuring. For many social activists, these announcements raised concerns that the CPP could be directly or indirectly contributing to company downsizing or outsourcing, and ensuing job losses for workers. In the same way, concerns have also been raised about the ethical conduct of many of the companies in which the CPP invests. In 2000, for example, the CPP Investment Board admitted to investing in Talisman Energy, a company in the spotlight for controversial investments in war-torn Sudan (investments the company eventually dropped). Another example that speaks to this point: CPP funds have been invested in tobacco companies.
Supporters of the CPP investment strategy, however, may argue that the primary concern of the CPP Investment Board is maximizing returns for Canadians in their retirement. As such, the focus should not be on the social impacts of the Board’s investments or the ethical conduct of the companies in which the board invests, but simply whether the investment is lawful and will strengthen the financial health of Canadian pensions.
In 2005, the CPP Investment Board did institute a new “responsible investing” policy. Under this policy, the board maintains that its “overriding duty” is to maximize investment returns for the CPP without undue risk of loss. It did, however, recognize the importance of responsible corporate behaviour vis-à-vis “environmental, social and governance” objectives as important considerations in determining where to invest pension funds.
Sources and Links to More Information
List of article sources and links to more on this topic
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