The Fraser Institute this week splashed vitriolic sarcasm all over the Canada Pension Plan and its financial reporting. The institute published a study by two economists aiming to find out whether the CPP is more efficient than private sector pension plans. They angrily denounced the government-run plan for concealing its true costs, but paid no attention to private-sector alternatives. Rousing displays of verbal fireworks could not conceal the study's failure to find out what Canadians need to know.
The country needs to know how best to cover the large gaps in pension coverage. About two-thirds of working Canadians have no company pension plan. They will rely on the Old Age Security and the Canada Pension Plan to pay for their retirement years. For many, this will mean a sharp drop in income when they retire. The obvious solution is to expand the CPP so that people now at work will save more for their retirement years. The Harper government, leery of laying new costs on employers, refuses to do that and is talking up a new kind of voluntary employer pension plan. The country needs to know whether private-sector plans or the public plan is a more efficient way of saving for retirement.
Authors Philip Cross and Joel Emes entitled their study "Accounting for the True Cost of the Canada Pension Plan." Their resounding conclusion is "Canadians should be informed of the total cost of administering the CPP's operations and the total costs involved in its increasingly complex investment strategy. Otherwise, the expressed intent to relentlessly search for lower costs will appear to be just another politically motivated bromide disappearing into the ether of a self-serving bureaucracy."
Apart from the bromide disappearing into the ether, however, the authors found little of interest. They found that the government collects the contributions to the Canada Pension Plan and pays out the pensions, for an administrative cost of around $550 million a year. The government recovers that cost by skimming an administrative charge off the contributions. If the CPP Investment Board counted that cost as part of its operating costs, those costs would be $550 million higher.
But we need to know if the government's costs for collecting contributions and mailing out cheques are out of line with operators of private-sector pension plans. The study's authors, who already know a self-serving bureaucracy when they see one, make no enquiry on that point.
The investment board, they find, incurs operating costs for its full-time employees and also hires outside consultants to work on its large investments in infrastructure and real estate. The board's net returns would look less juicy if it deducted consultant costs from its investment profits, they point out. What the public needs to know is whether private-sector pension funds count their consultant costs one way or the other and what rates of return are achieved on the two sides of the table. The authors skate around that difficult point.
Since the authors started out believing that the Canada Pension Plan and its investment arm are a "self-serving bureaucracy," it was predictable that they would find something objectionable about CPP administration. The surprise in the study is that the authors produced no evidence that private-sector pensions are more efficient. It is possible that they found evidence on that point but left it out of the published paper. Either way, their silence on the comparison suggests that the CPP stands up well to scrutiny.
A more useful study would produce evidence both from the public and private spheres. That study would have to be written by authors who gather the evidence first and then draw their conclusions. The study published this week seems more like the work of an agency with a narrow agenda -- what you might call a self-serving bureaucracy.