In order to realize a greater return from the surplus fund maintained by the CPP, the government has proposed that an investment board be set up. Under the oversight of this board, the fund will move away from investments in low-yield provincial bonds, to higher yielding ones, including government and corporate bonds and equities. The initial proposal calls for passive investment; that is, rather than attempt to out-perform the market by selecting specific stocks, the board will mirror the market by investing in stock indexes, such as the Toronto Stock Exchange 300 Composite Index.

This means that a portion of every worker's CPP contribution will be invested in stocks that are a part of the various indexes in Canada. Table 1 illustrates the equity portion of the investments, assuming that the board implements a balanced approach (50 percent bonds and 50 percent stocks), and that the fund is restricted to passive investment. The table is based on the assumption that a person will start to work in 1997 and earn the average industrial wage (upon which his CPP contributions are calculated) for his entire life. <Total lifetime contributions to CPP are $428,783; these do not represent individual claims to any assets, rather they are simply part of the general CPP funding. Assumptions incorporated in the calculation (4% nominal wage growth, 3.8% real return to CPP fund, and 2% inflation) are based on actuarial assumptions used by the Office of the Superintendent of Financial Institutions.>

Under normal circumstances, people choose to invest their savings based on a number of important factors, including the investment's expected return, and the individual's risk tolerance. For some Canadians, their decision to invest in a company hinges on its business practices and its products. In fact, the notion of so-called "ethical" or "social" investment has given rise to an entire sector of mutual funds specializing in these types of investments.

For instance, some ethical funds will only invest in companies that pass an environmental audit, while others restrict investments to companies that they view as socially responsible. Other criteria that may be considered include: employment equity policies, operations in countries that maintain racial equality laws, a majority of income derived from non-tobacco sales, and peace-based, non-military production.

In 1997, ethical mutual funds sold by the various Canadian credit unions represented over $1.25 billion in assets with over 110,000 investors. Other mutual fund companies have joined in and begun to offer ethical mutual funds as a result of customer demand.

The conflict between individual and collective choice is inherent in the CPP. This conflict arises due to the nature of compulsory programs and can therefore not be remedied by simply making incremental changes. In a free market characterized by individual choice, people are able to make investment decisions without government interference. The growth of the ethical mutual fund sector of the investment industry is a clear instance of the market's ability to respond to individual demands. However, when government intervenes to achieve some "social good," individual choice is replaced by govern-ment's collective decision-making.

The proposed CPP changes—including an increased contribution rate and the investment of surplus funds—are positive, market-based solutions to an inherently flawed program. But the contradiction between individual choice and collective decision-making cannot be reconciled by a government imposed program where individuals are not permitted to makeinformed decisions. The problems that the CPP faces are inherent in its nature, and cannot be fixed by tinkering at the margins. It is now time for Canadians to frankly and honestly discuss not just the CPP, but Canada's larger retirement income system.