By Robert Smithson

News media are awash with coverage of riots in the streets of Greece (with nary a Stanley Cup game in sight), a general strike in England, and news of impending budget gutting in Italy.  Common to all three countries’ situations is the word “austerity” and at risk in all is the stability of public pension plans.

In England’s case, the increase in the official retirement age was accompanied by announcements of cuts to state retirement benefits.  The trend of increasing the official age of retirement has swept up many European countries and, at least in some cases, a shortfall in funding for public pension plans is a good part of the reason.

Raising the retirement age has, it seems to me, two impacts on public pension coffers.  First, by having people work an extra year or two before throwing in the towel, employee and employer contributions into the plan are increased. Second, by delaying individuals’ eligibility to receive benefits payments, future payouts are decreased.

My guess is that we can expect to see more news of public pension shortfalls in European countries.  But what about here at home – what is the state of our Canada Pension Plan?

The funds of the Canada Pension Plan are handled by the CPP Investment Board – a professional investment management organization based in Toronto.  The CPP Investment Board was incorporated as a federal Crown corporation in 1997 and made its first investment in 1999.  Much useful information is available on the CPPIB’s website (www.cppib.ca).

According to its website, the CPPIB’s purpose is to invest the CPP’s assets in a way that maximizes returns without undue risk of loss.  As a fiduciary acting on behalf of 17 million contributors and beneficiaries, the CPPIB’s investment objective is to help ensure the sustainability of the CPP by designing a portfolio to address the CPP’s projected liabilities and by investment activities that enhance risk-adjusted returns.

The CPP’s assets comprise both investment returns and ongoing contributions from employers and employees.  Investments held by the CPP fund include equities, fixed income (primarily government bonds), and inflation-sensitive assets (real estate, infrastructure and inflation-linked bonds).

The CPPIB reports on the performance and the market value of the CPP fund on a quarterly basis.  The most recent figures put the total value of the CPP fund at $148.2 billion (comprising both investment returns and employer/employee contributions).

Canada’s Chief Actuary estimates that CPP contributions from employers and employees will exceed annual benefits paid out through until 2021. Thereafter a portion of the CPP fund’s investment income would be needed to help pay benefits.

After a couple of rough investment years in 2008 and 2009, the CPPIB earned investment returns of almost 15% in 2010 and almost 12% in 2011 (the 10 year annualized rate of return is presently 5.9%).  In those two fiscal years, total investment income of $31.7 billion was generated.

What kinds of assets does the CPPIB own?  Would you have guessed it owns interests in (among many other things): two prime Manhattan office buildings; a new 1.9 million square foot retail and entertainment development next to the 2012 London Olympics site; the 407 Express Toll Route outside Toronto; a toll road in Sydney, Australia; an industrial facility in Hong Kong; and a shopping centre in Germany?

In his latest triennial review completed in November 2010, the Chief Actuary reaffirmed that the CPP remains sustainable for at least the next 75 years. 

With all the other things we have to worry about, it seems that a pending cut to our anticipated CPP benefits isn’t one of them.  So, I think we can safely eliminate stress over the future of our public pension plan as a contributing reason to Vancouver’s recent riots.

Robert Smithson is a labour and employment lawyer, and operates Smithson Employment Law in Kelowna. For more information about his practice, or to subscribe to You Work Here, visit http://www.smithsonlaw.ca. This subject matter is provided for general informational purposes only and is not intended as legal advice.

This article was originally posted on You Work Here.