CPP fund as solid as cement

Benj Gallander and Ben Stadelmann
Friday, February 4, 2005

“Hey, Jim, did you see that Portuguese cement company we picked up? Cimpor. Looks pretty good. Operations in seven countries from Angola to Brazil. They made 186 million euros last year on revenues of 1.3 billion. But get a load of the corporate slogan: ‘Our soundness is in your life.’ Definitely something lost in translation there.”

That may sound like a slice of conversation between managers of a European value fund, but it would be appropriate, however unlikely, around any water cooler or kitchen table in the nation. That’s because you — yes, we’re talking about you — own a little piece of Cimentos de Portugal SA, or Cimpor as it’s commonly known, by virtue of compulsory participation in the Canada Pension Plan.

It would be unreasonable to expect Canadians to know the details of the CPP’s holdings: its foreign equities comprise $9.3 billion in 28 countries in every corner of the world. The portfolio also holds a broad swath of domestic corporations, including a couple that are also in the Contra portfolio: Hudson’s Bay Co. and Leitch Technology.

There is little excuse, however, for the woeful level of general ignorance regarding the CPP. Poll after poll indicates that a majority of working Canadians believe the cupboard will be bare by the time it is their turn to retire.

This pessimism appears to have more to do with a general skepticism about the government’s ability to manage money wisely than the pertinent facts about the condition of the CPP.

For starters, the CPP Investment Board’s poll in September 2004 shows that 69 percent of Canadians had no idea that a large pool of assets existed to help pay for future pension benefits.

Of those who did know about this, a third wouldn’t hazard a guess as to how much was in the pot. Twenty-eight percent thought it was in the range of $500 million to $1 billion. The actual amount is $73 billion!

Here’s a question the pollsters didn’t ask: Is the amount of money in the fund dwindling, staying about the same, or growing slowly?

Give yourself a cookie if you said “none of the above.” That’s right. In fact, it is growing at a prodigious rate. The fund has more than doubled in size in five years. The CPP board held just $37.6 billion in 1999. At the pace that contributions are flooding in, the fund is projected to double again to $146.8 billion by 2010.

Once the wave of boomers starts collecting in 2022, benefits paid out will exceed contributions, but the fund will still keep growing, albeit more slowly, with the income generated from a $380 billion mountain of assets.

So, folks, the math indicates that the money will be there when you retire. Of course, keep in mind that the level of benefits is modest and designed only to ward off poverty, not perpetuate the lifestyle of affluent boomers. If you’re planning to jet around to resorts or take the grandkids on Disney cruises, you’re still going to need a healthy RRSP to afford a stylish retirement.

For more information, visit the CPP Investment Board’s excellent website at
www.cppib.ca. After all, it’s your money.