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Fraser Institute: Canada Pension Plan Costs Triple as Investment Board Spending Skyrockets

TORONTO, ONTARIO -- (Marketwired) -- 09/03/14 -- The cost of running the Canada Pension Plan has more than tripled, the result of transaction fees and external management fees, finds a new study released today by the Fraser Institute, an independent, non-partisan Canadian public policy think-tank.

The study, Accounting for the True Cost of the Canada Pension Plan, spotlights the costs of administering the CPP, which includes spending by the CPP Investment Board, a Crown corporation that manages and invests CPP assets, as well as costs incurred by the federal government to run the plan.

"Contrary to claims of proponents of an expanded CPP, or a provincial pension plan in Ontario, many of the costs of large, government-managed pension plans like CPP are hidden. A full examination of all costs shows that CPP is not as low-cost as they want you to believe," said Philip Cross, study co-author and former chief economic analyst for Statistics Canada.

Between fiscal years 2006-07 and 2012-13, the total cost of running the CPP jumped to $2 billion from $600 million, despite an investment board report that claimed its operating expenses in 2012-13 were only $490 million.

Why the discrepancy? The CPP Investment Board excludes from its operating budget a) management fees it pays to external consultants, b) transaction fees associated with acquiring assets and c) costs incurred by four federal government departments.

"Contracting out investment strategy consultation may be justifiable but excluding those rising costs from reported expense ratios is not," Cross said.

Broken down, in 2012-13 the CPP Investment Board spent $490 million on operations; $782 million on external management fees; and $177 million on transaction fees for a total of $1.4 billion. Add in the federal government's administrative costs of $586 million for collecting contributions and paying benefits, and the total comes to just more than $2 billion.

"The CPP Investment Board now spends almost twice as much on management fees and transaction costs as it does on actual operations," Cross said.

By excluding additional costs such as external management fees, transaction costs and the federal government's share, the board can portray itself as low-cost and efficient. In reality, notes the study, when all costs are considered, the CPP Investment Board costs four times more than its official operating budget.

Why is this important?

"For the public to understand the true costs of the Canada Pension Plan, there must be greater transparency and a full accounting of all costs," Cross said.

"Every dollar spent on running the CPP is one less dollar available for Canadians who contribute a portion of their paycheques to the plan, so it's vital that the CPP is as efficient and as transparent possible."

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The Fraser Institute is an independent Canadian public policy research and educational organization with offices in Vancouver, Calgary, Toronto, and Montreal and ties to a global network of think-tanks in 87 countries. Its mission is to measure, study, and communicate the impact of competitive markets and government intervention on the welfare of individuals. To protect the Institute's independence, it does not accept grants from governments or contracts for research. Visit www.fraserinstitute.org

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