How the CPP gets an unfair advantage against private funds

Fraser Institute says the public plan is not more efficient

How the CPP gets an unfair advantage against private funds
Steve Randall

A perception that the Canada Pension Plan’s lower costs are due to efficiency are misguided according to the Fraser Institute.

It says that the public plan is able to offer lower costs due to a reduced regulatory burden than private pension plans; but that doesn’t make it better.

“The regulations governing private pension plans—which can lead to increased transparency and accountability—inevitably also increase costs, but often those same regulations and costs don’t apply to the Canada Pension Plan,” said Moin Yahya, Fraser Institute senior fellow, law professor at the University of Alberta and co-author of Understanding the Regulatory Framework Governing Private and Public Pensions.

The report analyzes the many rules and regulations applied to public-sector and private pension funds, TFSAs and RRSPs.

It highlights that the CPP is exempt from many customer-related and disclosure regulations including regular financial statements, as well as provincial rules and industry-organization standards.

Litigation, transferability all add to private plan costs
Private plans face all of these government-imposed regulations, which lead to additional costs.

“Too often people jump to the conclusion that the CPP’s comparatively lower costs are a function of efficiency, but the reality is that substantial regulations are imposed on private plans that the CPP avoids,” explained Yahya.

Private funds also need to account for the cost of their transferability from one plan to another whereas the CPP contributions cannot be transferred.

And there is the potential cost of litigation if a private plan is sued for bad governance; there are no laws allowing similar action to be taken against the CPP.

“Understanding what actually drives the cost differences between the CPP and private alternatives is critical,” Yahya said. “The reality is that some of the cost of private pensions is a result of government-imposed rules and regulations from which the CPP is exempt.”