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HISTORY The CPP was established in 1966 by Prime Minister Lester B. Pearson . Back then, the prescribed contribution rate was 1.8% of an employee's gross income went towards contributing to the CPP. However, by the 1990s , it was concluded that the "pay-as-you-go" structure was not sustainable, due to Canada's changing Demographics , increased Life Expectancy of Canadians, and a changing Economy . Based on the current numbers, it is estimated that CPP benefits paid out will exceed CPP contributions in 2022 . This impending Pension Crisis sparked an extensive review by the federal and provincial governments in 1996 . As a part of the major review process, the federal government actively conducted consultations with the Canadian public to solicit suggestions, recommendations, and proposals on how the CPP could be restructured to achieve sustainability once again. As a direct result of this public consultation process and internal review of the CPP, the following key changes were proposed and approved by the Federal government in 1997 :
CPP INVESTMENT BOARD Under the direction of then Finance Minster Paul Martin , the CPP Investment board was created in 1997 as an independent organization to provide the necessary investment returns to sustain the CPP. In turn, the CPP Investment board created the CPP reserve fund, which will basically be the vehicle for achieving sustainability. The CPP Investment board is organized like a publicly traded company. It reports Quarterly on its performance, has a management team to oversee the operation of various aspects of the CPP reserve fund and also to plan changes in direction, and a board of directors that is accountable to the Federal government. Some Civil Society groups, like http://www.actfortheearth.org ACT for the Earth] have expressed concerns that the CPP has invested at least $2.87 billion in companies, which CPP Investment board members are connected to, which could be significant conflicts of interest. The CPP reserve fund receives its funding from the CPP and basically invests that like a fund manager would. As of August 2005, the CPP Reserve fund contained a total of $87 Billion under management. The CPP reserve fund needs to achieve a goal of 4.1% return ( Inflation -adjusted) in order for the CPP to be self-sustainable. As indicated in its most recent quarterly report in August 2005, the CPP reserve fund averaged 7.2% return in the past 5 years. Adjusted for inflation, the real rate of return is 4.6%, which means that it has achieved its stated goal thus far. Growth and Strategy The CPP reserve fund is aiming to achieve the following growth targets:
The strategies they use to achieve these targets are listed on the CPPIB website, and includes the following: # Diversification. Back in 1997, the CPP started out 100% invested in Federal bonds, but now it has diversifed not only by asset class, but also by country, as it is no longer restricting itself to invest in Canadian equities and assets. # Employing basic asset allocation theories. With diversification of investments as one of their objectives, their current Asset mix is now as follows:
# Using equity firms to assist in achieving targets for each asset class. The CPP reserve fund allocates certain amounts to various pre-qualified Equity firms to be managed and used towards reaching the growth targets. For example, the CPP Investment board hires private equity firms to help it invest in private companies, fund managers to help it invest in public equities, bond managers to assist in investing in Bonds (within Canada and foreign bonds), and so forth. QUEBEC PENSION PLAN - QPP The Quebec Pension Plan, or QPP is Quebec's version of the Canada Pension Plan. Like the CPP, it is an earnings-related plan. It pays out in the event of the earner becoming disabled, retiring, or dying. Both Quebec and the federal government tax benefits from the QPP. EXTERNAL LINKS
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