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NewsmakersNovember 17, 2021

Public-Sector Pensions Help Drive Canadian Economy

A report finds Canadian plans add C$82 billion to the country’s GDP annually.

Canadian public pension funds are proving to be an important driver of the country’s economy, contributing more than 877,100 jobs and over C$82 billion (US$65.5 billion), or 3.6%, of its gross domestic product (GDP) annually, according to a recent report from the Canadian Centre for Economic Analysis (CANCEA).

The report found that through the economic activity supported by spending their pension incomes, retired public pension members alone support more than 794,000 jobs and C$74 billion of Canada’s GDP. It said the economic activity supported by the plans creates revenue for the provincial and federal governments through personal, corporate, and consumption taxes, which total nearly C$21.4 billion every year. Additionally, every C$10 of pension payments generates C$16.70 of economic activity.

“These economic activities support demand for labor and subsequent spending, which ripples through the economy,” said the report. Contributions from “pension spending” include all economic activity supported by public-sector pension fund retirees when they spend their retirement benefits payments, and contributions “from operations” include the economic activity driven by public-sector pension plan operations.

The pension funds collectively have approximately C$1.27 trillion invested in assets around the world, with “a good proportion of that invested in Canada,” according to the report. The investments have generated C$92 billion annually over the past five years in returns from those investments.

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The report also found that of the 5.26 million active and retired members, 3.37 million, or 64%, are female, and that there are nearly twice as many female members as male members receiving a retirement income from the public-sector pension plans. It also said that retirement benefits provided by the plans “are a major source of retirement income,” as they account for more than 40% of all private retirement income in the country, serving 1.85 million retirees. The remaining 60% is made up of retirement savings programs such as annuity contracts, deferred-profit sharing plans and individual Registered Retirement Savings Plans (RRSPs), and private-sector pension plans.

The research also found that although the number of public-sector plans has been relatively constant over the past 15 years, the active membership has been increasing. There were approximately 3.41 million active members as of 2019, up from 2.65 million active members in 2005. Meanwhile private-sector pension plan membership has been relatively stagnant.

The report also found that:

Public-sector plan members invest 8% of their salary on average, which amounts to C$43 billion annually when combined with employer contributions;
As retirees spend their income, the direct and indirect impacts support the equivalent of 55,500 businesses, 72% of which employ fewer than 10 people; and
More than one in 10 Canadians benefit in some way through receiving retirement income, working in businesses, or being financially supported in their households.

Pressure Mounts on CalPERS to Ditch Fossil Fuels

One public commentator accused the pension fund of investing in ‘merchants of death.’

By Anna Gordon

At least 11 people spoke up at the most recent California Public Employees’ Retirement System (CalPERS) board meeting, urging the pension to divest from fossil fuels and taking up more than half the allotted time for public comments.

CalPERS currently has approximately $30 billion invested in fossil fuels, making the allocation 6% of its total $495 billion portfolio. Within CalPERS, there are still many who believe that by wielding its influence as a major shareholder, the fund can help fossil fuel companies transition to becoming greener from the inside. This strategy, known as “engagement,” is controversial.

One board member, Margaret Brown, was among the voices that spoke for divestment, saying the CalPERS board should direct investment staff to pull out of the industry. “I don’t believe engagement is working,” she said.

Brown has developed a reputation as a contrarian voice on the CalPERS board, often being one of the only dissenting voices in investment decisions. She recently lost her campaign for re-election to the board and will be leaving her position in January.

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For now, official CalPERS policy remains committed to the engagement strategy. “So far we have 111 companies with net-zero commitments by 2050,” said Anne Simpson, managing investment director of board governance and sustainability for CalPERS. Simpson pointed to the Climate Action 100+’s recent progress report as proof that the engagement strategy works. The investor-led initiative encourages fossil fuel companies and other greenhouse gas emitters to achieve net-zero carbon emissions.

Nevertheless, there are those who remain skeptical of the strategy, saying these commitments are not legally binding enough. Carlos Davidson, a public commenter from the California Faculty Association, said engaging with these companies is only prolonging their ability to harm the environment. “Despite more than a decade of yours and others’ efforts at shareholder engagement, fossil fuel companies remain the single most powerful obstacle to governments addressing climate change,” he said.

Simpson disagrees, saying that even though the commitments are not legally binding, companies will still be forced to fulfill their promises. “The consequences of not responding will be seen through proxy votes at the AGM [annual general meeting],” she told CIO via email. She cited ExxonMobil’s reluctant recent installment of three net-zero-minded directors at the behest of institutional investors this past summer as proof of shareholder power.

But many still worry that fossil fuels are not only harmful to the environment, but are also unprofitable. A study by the Canadian research organization Corporate Knights showed that CalPERS has lost approximately $11.9 billion by being invested in fossil fuels from 2009 to 2019.