Public Pension Funds Perform Better When They Keep Politics at Bay

Autonomy for pension institutions starts with a strong governance framework. Some institutions, such as the Canada Pension Plan Investment Board, are stand-alone legal entities with an independent board and a requirement to operate at arm’s length from government. In recent years, a number of jurisdictions, such as the state of Oregon, have explored introducing this model. An independent board is considered by some to be so important that the drafter of a recent proposal to create a pooled public sector pension fund (one for the employees of several public sector entities) included a radical provision calling for the board to be granted the authority to appoint a majority of its own members. To ensure accountability, the government would be empowered to remove an individual director for cause or, in extreme cases, to dismiss the entire board. Its author reasoned that the government should be handed “a nuclear bomb but not a bunch of grenades.”