Financing the Canada and Quebec Pension Plans

Financing the Canada and Quebec Pension Plans describes the evolution and financing policies of the Canada Pension Plan (CPP) and the Quebec Pension Plan (QPP), focusing on the organization and experience of the plans’ investment boards.  The paper reviews the reforms to the CPP – benefit cuts as well as market investment – that have led to a steady-state contribution rate for the CPP and the consensus that the CPP is presently healthy.  The situation is somewhat different for the QPP, given different demographics and weaker economic growth in Quebec.  The Quebec Pension Plan will require some, albeit modest, contribution increases or benefit reductions.  In addition to maximizing investment return, the QPP’s mandate includes promoting economic development in Quebec.  The CPP explicitly does not have a mandate to promote Canadian economic development, but is singularly focused on achieving investment returns.  The paper argues that the differing experiences of the QPP and CPP demonstrate that it is possible to set up a public investment fund to seek whatever objectives politicians want to set for it.  There is nothing about a public fund that inherently implies ‘political interference.’

This paper was written for the American Association of Retired Persons Public Policy Institute. It concludes with several lessons that the United States might learn from Canada’s experiences with investing its public pension reserves.