The Socialism of Pension Funds

Some of my earliest research into pension funds led me to the writings of Peter Drucker. He envisioned in the 1970's that a move towards power in the hands of the worker through their ownership of the means of production. This ownership would be controlled by worker's pensions.

The 1970's were the beginning of large scale funding into pension plans. For example, most of the $100Billion accumulated into Ontario's Teachers Pension was saved over the past 30 years. The CPP Canada Pension Fund has accumulated over $100 Billion in a very short time.

Socialism is occurring in most developed economies around the world. It is occurring through pension funds.

Socialism refers to various theories of economic organization advocating state, worker or public ownership and administration of the means of production and allocation of resources... Contrary to popular belief, socialism is not a political system; it is an economic system distinct from capitalism

Wikipedia

Long Term Implications
What will be the long term implications for capital markets and hence the means of production of the world being controlled by pension funds?

Some estimates place the total market value of the TSX at around $1.2 trillion. In Canada pension plans own a very substantial portion of those assets. The Economist

The major Canadian pension plans are owned and controlled by public sector unions. The Ontario Teachers for example, owns the a major portion of commercial property in Canada. As well they love monopoly and infrastructure industries where profits are in the range of 20% to 25% every year.

Political Implications
What will be the long term political implications?

The influence of pension funds around the world is going to have major implications on political policies. What is the impact of public sector unions controlling through pension funds most of a country's wealth?

Public sector unions are have very strong political views and the investments that they control will have major political influence. The public sector unions(CUPE) has very strong vies and opinions on several major social and political issues.For exampe the web site of CUPE speaks out on many issues:

Trade - Foreign policy
Mandatory retirement
World Bank
NAFTA
Social services
Racism
Poverty
Highways - Toll roads

These are all important issues. However, I am not sure that the public sector union view is always the best solutions for many of the problems facing our country.

Political Impotence
For some time I have had the view that the politicians in this country have less impact on government workings and policies than the union bureaucracy. Now the bureaucracy now has the economic levers as well.

Despite the rhetoric the public sector unions do not always represent the best interest of the Canadian public. In a fight over what is best for society and what is best for the unions, the unions always side with members.

We have the situation that the long term government policies are set and impacted by government union members.

When it comes to making decisions will the unions do what is best for Canada or what is best for their pension funds? One example of this is the 407 Highway in Toronto. It is one of the most expensive highways in the world.

Is the pricing on this road based on what is best for the economic movement of goods around the metro area or what is in the profit interests of the pension plans that own the 407?

Beaten at Our Own Game
As we see the rise in Pension Socialism in the western world we are at risk of being overtaken by the BRIC (Brazil, Russia, India, China) countries. With the rise of the middle class in these countries the rise of capital will be staggering.

The Wall Street Journal today reports that Pension Funds in Asia Passed Europe's in 2008. What will happen as more and more the workers in these countries begin to accumulated capital into pension funds? China starts pension plan trial for 800 mln farmers
These pensions funds will want to start to invest in the popular investments of pensions funds:

Infastructure

Real Estate

Commodities

There will be many very interesting developments to come in the years ahead.

The Double Dip Party Continues

A news article caught my attention today. Pension + Salary — how’s that for a “retention bonus”?

It is an issue that is rising is concern across the US. My hope is that it will soon be addressed in Canada as well. My recent blog called Canada promotes double dipping covered the basics of the issue.

If you see any Canadian articles about double dipping, please let me know.

Some NY lawmakers collect pension pay and salaries
State Legislators Double-Dip Salaries, Pensions; Lone Holdout Honored
In Utah - Double dippers adding to the pension fund problem?

USA Today - Our view on ‘double dipping’: Public sector ‘retirees’ draw a pension — and a paycheck
Auditor: 'Double dipping' costs Del. $17M a year
Florida limits 'double-dipping' for state workers

The Heavyweights Step In!

Today CARP, The Canadian Association of Retired Persons released a series of advocacy articles aimed at creating major pension reform in Canada.

At initial glance there are certianly some very intersting proposals and ideas originating from the articles in this month's CARP on-line forum. As Zoomers

Pension Reform: the status quo is not an option
This article has brought attention to the clamour across the country for pension reform. It notes some of the pension reform commisions that have been struck across the country to review pension issues.
One intersting note about this article is the call for universal access by all Canadians to a form of defined benefit plan. These type of plans have been the ones that have created the pension crisis we are in and would only be a intergenerational burden with the next generation picking up the tab.
The most positive call to action for this article is a Pension Summit of the First Ministers and Finance Ministers. Included is a list of the emails for all of Canada's Finance Ministers who will hear the message loud and clear over the next few days.

Need to expand the Canada Pension Plan
CARP calls for a complete overhaul of the CPP program. This is an attempt to ensure that all Canadians will have a reasonable retirement income.
One of the ambitious objectives of this article is for a replacement income of 70% for all retired Canadians. This is a great objective but would call for a doubling of contributions from 9.9% to almost 20% of income.

Pension Reform – It Starts with You
Pierot makes the case for increasing the contribution limits for higher income Canadians to allow for more accumulation into retirement plans.
Pierot makes his case by starting off by pointing out the large disparity between private and public sector pensions. This article classifies public sector plans as first class and the average Canadian's retirement plan as economy class.

"About 2.7 million public sector workers (more than 80% of the public sector) travel first-class as members of defined-benefit (DB) pension plans. After a 30-year career, a worker earning $80,000 will have an indexed pension integrated with the Canada Pension Plan that pays $48,000 per year for life and is worth about $1 million.

The 23% of private sector workers with pension plans are mostly travelling coach. Many belong to defined-contribution (DC) pension plans that don’t promise a guaranteed pension.

With no pension plans, the remaining 77% of private sector workers (10.6 million) are travelling standby."

Whatever the outcome of these articles they are sure to create a ripple throughout Canada. Let's hope for the best.