The Canada Pension Plan (CPP) is more costly than five public sector pension plans, according to a new report by the Fraser Institute.
The report compared the total costs, including investment and administrative of the CPP with five large public sector plans based in Ontario, including: the Ontario Teachers’ Pension Plan (OTPP), the Ontario Municipal Employees Retirement System (OMERS), the Healthcare of Ontario Pension Plan (HOOPP), the Ontario Pension Board (OPB), and the OPTrust.
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It found that the CPP, which is the largest plan with $269 billion of assets, had the highest expense ratio at 1.07% of its assets on average for the whole period between 2009 and 2014. The OTPP, the next largest plan at $154 billion of assets, had the fourth highest average expense ratio (0.63%).
“In fact, there may be diseconomies of scale for larger public pension plans because of the complexity of implementing their investment strategies, which include contracting out for external experts – a practice that has become increasingly popular, with plans investing more in non-traditional assets such as real estate, infrastructure, and private equity,” said the report.
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“These more aggressive investment strategies raise costs. Whether they are justified by higher rates of return will not be known for decades, and depend on whether the assumption that markets have mispriced these assets is borne out.”