CPP is A-OK

Of all the contentious debates currently simmering among the U.S. population, the question of what to do with Social Security is just about one of the most impassioned ones you can find right now.

Up here in Canada, we had our own version of this debate a few years ago, when everyone (and their elderly mother) chimed in with an opinion on when, exactly, the Canada Pension Plan was going to run out of money, and what, precisely we should do about reversing that trend.

State-run pension plans are generally thought of as being underfunded and chronically mismanaged. But in Canada's case, at least, I think that's an unfair characterization. The reality is way better that most people's perception.

Very quietly, the Liberal government in the 1990s overhauled the way CPP works, moving the plan away from low-risk, low-yield Canadian bonds and into more diverse equities from around the world.

Ten years on, the results are eye-opening. The CPP has averaged an 8.6-per-cent return over the past five years, and the chief actuary is forecasting returns of 4.6-per-cent above inflation per year over the long term.

In 2006, the plan actually showed a surplus of more than $100-billion and it's estimated there is already enough money in there to sustain itself for 75 years, even if the assets stop growing entirely.

As financial planner John DeGoey is quoted as saying in the above-linked article: "You can say what you want about Paul Martin but he did well in getting the financial house in order."

I don't write this to in any way cheerlead for the former Liberal government. But in an age where we see waste all around and too many people, and governments, not showing enough fiscal restraint, I think it's important to recognize a job well done.

Remember those numbers the next time you catch yourself griping about the CPP contribution your employer takes off your next paycheque.