Abstract

CANADA PENSION PLAN INVESTMENT BOARD:
AVERTING THE OLD AGE CRISIS … BY SIMPLY PLAYING THE MARKET?

Thaddeus Hwong

In 1994, the World Bank published an influential research report entitled “Averting the Old Age Crisis,” which sparked public policy debates on whether financing public pensions on a pay-as-you-go basis is viable and helped trigger the 1997 round of reforms of the Canada Pension Plan (CPP).

The ostensible purpose of the reforms was to fix the alleged CPP financing problems so the pay-as-you-go public pension scheme will have enough money to pay for the retirement of future retirees. The prominent feature of the reforms was the establishment of the Canada Pension Plan Investment Board to invest money not required to make CPP payments immediately in instruments other than provincial government bonds.

The creation of the Board reflected a change in public pension policy that is the first of its kind in Canada. Amidst the dot-com boom, the publicly-financed-but-privately-managed investment fund was set up to fix the alleged CPP financing problems by maximizing investment returns in private securities markets. Is investing in stocks, private equities and real estate the best-available policy to eradicate the alleged CPP financing woes?

I would argue that a mere switch in investment strategy would not solve all the alleged CPP financing problems the 1997 public pension reforms were purported to fix. If the switch in the investment strategy were the answer, the alleged financial insecurity of the CPP would not have been the question. The pension reforms seemed to be built on an ideological belief that the new investment strategy could boost capital accumulation and economic growth and thus solve all the alleged CPP financing problems, but I would argue that such a belief ignores the disconnect between the financial markets and the rest of the economy and Canada could not avert the alleged old age crisis by simply playing the market.

Bio

Thaddeus Hwong is a PhD candidate at Osgoode Hall Law School of York University. In addition to pensions and the welfare state, he is interested in tax policy and judicial decision making, information technology and legal education as well as law and journalism. One of his current research projects involves the selected use of advanced statistical models and intensive use of computing power to ascertain the interaction effects between “the rule of law” and social background attributes of judges on the outcomes of tax cases. He holds a LLB from Osgoode, a MSc in journalism from Columbia University and a BA in economics from York.

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