Chapter 4 (Security!!)

Canada Pension Plan fund feasts on rising markets: 10.1% nine-month return

The Canadian Pension Plan fund, which includes investment earnings, grew by $7.5 billion to $110.8 billion during the quarter ended December 31, 2006. For the quarter, the CPP fund experienced an investment rate of return of 8.7 per cent, or an increase of $8.9 billion [Calculation₃: ROI Increase= $10.3-1.4=8.88], while the fund paid out $1.4 billion for CPP benefits [Calculation_2: ROI Given=10.3*0.138=1.42] as it typically does in the latter part of the calendar year [Calculation₁: ROI= (10.1%-8.7%)/ 10.1% = 0.138]. Overall, the result is a $7.5 billion increase in the CPP fund. CPP contributions are expected to exceed annual benefits paid until 2022, providing a 15-year period before a portion of the investment income is needed to help pay CPP benefits. Over the next ten years the CPP Investment Board estimates that the CPP fund will grow to approximately $250 billion making it one of the largest investment capital in the world and helping to secure the CPP for the long term.

Canadian government securities are alternatives to taxation where the government generates revenue. Taxpayers voluntary lend money to the government to pay for expenditures in the Canadian Pension Plan, mutual funds, bonds, and other insurances. These securities typically pay for large capital expenditures because many people wait years for the maturity date before cashing in on their investment so these expenditures are easily financed over number of years. The CPP Investment Board invests the funds not needed by the Canada Pension Plan to pay current benefits. With a mandate from the federal and provincial governments, the CPP Investment Board is accountable to Parliament. The government becomes the guardian of the CPP to the 16 million contributors and beneficiaries. In the years to come, the increase amount in the CCP provides the government with widespread borrowing from bonds and debentures. This can eventually reduce the amount of unmatured debt and continue to fund costly programs.

The CPP portfolio is extensive and its horizon is a great long-term investment. I already contribute to the Canadian Pension Plan and hope that in the upcoming years, my investment will be prosperous. Although, the estimated profit in the CPP is hefty, many people will retire in a few years to cash in. Thus, the number of contributors would decrease once the investment income is required to pay pensions. This will lead to a lower amount invested in bonds and other types of investment securities. The amount borrowed by the government will also decrease creating the quality and quantity of programs to decrease as well. However, if the CPP Investment Board is sagacious and continue to invest wisely on the Canadian and foreign equity market then the government may continue to receive revenue funding from the Canadian Pension Plan. Furthermore, I believe the return on investment is extensive and hence, I will also continue to contribute my income to the Canadian Pension Plan fund.

http://www.cbc.ca/cp/business/070208/b020859A.html#skip300x250