PS pension fund seeing healthy growth JORDAN PRESS Published on: August 1, 2014 The public sector pension fund posted one of its best returns since the economic downturn in 2008 as it sunk its money into European airports and more Manhattan real estate. A 16.3 per cent return brings the total value of the investment fund, which is fed by pension plans for public servants, the RCMP and military reserves, to $93.7 billion, according to its annual report. That amounted to an increase of $17.6 billion from the almost $80 billion recorded one year earlier. If it continues to grow as planned, the fund — the fifth largest in the country — expects to more than quadruple in value over the next 20 years and be worth $425 billion by 2035, just when it will see more money flowing out to pay benefits than it receives in contributions and investment income. The figures should only add to the ongoing battle between the government and public sector unions about the future and sustainability of the pension plans. Ian Lee from Carleton University’s Sprott School of Business suggested the government could use the figure for more leeway in making changes to the pension system, but shouldn’t avoid making changes based on the projections. “The government should not be saying, ‘Oh, well, they’re projecting a big fat number … so we’re clear sailing,” Lee said. “Any statement about the future is a projection. It’s not a statement of fact.” If things go wrong — such as lower than expected interest rates or bad investments — “the government is on the hook,” Lee said. “They’re trying to maximize and get bigger and better returns because they know that down the road they’re going to have an awful lot of people claiming (benefits),” he said. Pension reform has returned to the national agenda earlier this year when the Tories unveiled “target benefit” pension plans for Crown corporations and federally regulated industries. Public service pensions aren’t part of that proposal, but unions have expressed concerns that their plans could be next for such change after the government raised the age of retirement and employee contributions. The government has a $152-billion pension liability that it must fund. That amount could easily rise if public sector pensioners live longer: In May, auditor general Michael Ferguson said an extra year or three could increase that liability by between $4.2 billion and $11.7 billion. A spokesman for the investment fund said the $152-billion liability is for pensionable service before 2000. After that time, payments come out of the fund. To remain afloat, the investment board has to keep real investment return — overall returns minus inflation and expenses — at 4.1 per cent annually. In the last fiscal year, the real return was about one per cent above that target. In the last year, the fund bought a high-rise office building on Park Avenue in New York City; spent $1.5 billion for several airports, including ones in Athens, Budapest and Sydney, that combined handle about 95 million passengers a year; and invested in farmland in Latin America. “Those assets reduce the risk for the portfolio,” said fund spokesman Mark Boutet. There may come a time when the fund will need to unload those assets to pay for pension benefits, “but that time is far out,” he said. The top five executives, meanwhile, had their compensation reduced. They earned $13.7 million in compensation, a decrease of 16 per cent from the $16.3 million recorded in 2013. Those declines came after an outcry from opposition critics last year over a 50 per cent increase in executive payouts between 2012 and 2013. Gordon Fyfe, who left as CEO in June, took home $4.2 million in total compensation in the last fiscal year, a $1.1 million decrease from the $5.3 million the previous year. Like those of other executives, much of Fyfe’s compensation came from bonuses atop of his base salary of $500,000. The Public Sector Pension Investment Fund, by the numbers $97.3 billion: Value of the fund at the end of the 2014 fiscal year $17.6 billion: Increase in value between the 2013 and 2014 fiscal years 35%: Percentage of funds in foreign investments $13.7 million: Total compensation to the top five executives at the fund $4.2 million: Total compensation former CEO Gordon Fyfe received in the last fiscal year 4.1%: Average increase, after costs and inflation, in the fund’s value needed to meet future pension obligations 0.9%: Average increase above the 4.1 per cent the fund has achieved over the last decade $425 billion: Projected value of the fund by 2035 (Source: Public Sector Pension Investment Fund 2014 annual report)
Posted on: Tue, 05 Aug 2014 12:05:09 +0000
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