Coyne on Pensions

Andrew Coyne takes on public pensions in the current edition of Maclean’s (which does not yet seem to be available online). He not only criticizes the Caisse de Dépôt’s lousy investments, but calls for doing away with the Canada and Quebec Pension Plans (CPP and QPP).

Coyne’s secondary headline (and primary argument) is, “Compulsory plans like the CPP expose older investors to risks they shouldn’t have to face.” His logic is that, whereas risky assets with potentially high returns (e.g. stocks) make sense for young people with decades ahead of them, safer assets with modest returns (e.g. bonds) make sense for people closer to retirement. In buying some risky assets, the CPP Investment Board allegedly forces excessive risk upon older Canadians.

What Coyne seems to miss is that younger Canadians are also members of the CPP. If risky assets are appropriate for young people and safe assets are appropriate for old people, then the CPP should buy a combination of risky and safe assets . . . which is what it does.

Of course, there is undoubtedly legitimate room for debate about the precise mix of assets. But Coyne presents no information on the composition of the CPP’s portfolio.

More generally, one might suggest that public pension plans should pursue public goals other than trying to maximize their risk-adjusted financial return. The CPP used to generate guaranteed returns and facilitate public investments by lending to provincial governments. Through the Caisse de Dépôt, the QPP used to contribute significantly to Quebec’s economic development.

Indeed, it is somewhat ironic that after proponents of Coyne’s free-market philosophy succeeded in advocating that the CPP and the Caisse get into financial markets, he is using the latter’s financial-market misadventure to attack both institutions.

UPDATE (March 12): Coyne’s column is now available online.