On January 1 the Canada Pension Plan went into effect. Long advo-

cated by progressive and labor circles,

the winning of the plan immediately

up some new problems for thousands of workers in dozens of indus-
tries all over B.C. What happens to existing boss-employee pension

schemes? Should a worker

“cash in and get out”? Should he stay in and try
to have the private plan integrated with the

Canada Pension Plan?

Below is how the PT’s financial writer, EGBERT, answers these and

other questions.
A statement by Wm, Mercer
and Company estimated
that British Columbia workers
will be or are withdrawing some-
thing like $30 million of contri-
butions from Pension Funds this
winter,

Until now, pension contribu-
tions once made were frozen
under income tax regulations until
the contributor either retired or
left his employment, With the ad-
vent of the Canada Pension Plan,
the government has given. all
contributors until March to draw
out their contributions to private
company plans if they feel that
the new government pension will
be adequate for their needs,

It is, of course, the individual
worker’s own affair if he wants
his money now rather than leave!
it to buy him a pension later,

The tragic feature ofthe situa-
tion, however, is that thousands
of workers are taking their money
on the basis of inadequate in-

formation, or in many cases,
misinformation.

For example, although few
company plans are as generous
as they appear on the surface,
nevertheless in the typical case
a worker who draws his money
will thereby forfeit an approx-
imately equal amount contributed
by his employer,

By his action, he relieves the
employer of responsibility for
providing for his retirement,

Perhaps in time, collective
bargaining will right the situa-
tion by the provision of non-
contributory pensions such as
now. exist at Cominco in the
Kootenays and on the West Coast
waterfront,

But for the individual worker
now covered by a contributory
plan, this is a gamble,

The situation is providing a
bonanza for Mutual Fund sales-

Top level meet
slated in Nigeria

A meeting of Commonwealth
Prime Ministers has been
scheduled to deal with the Rho-
desian crisis, it was reported
this week, Indications from Ot-
tawa were that Prime Minister
Pearson would attend the confer-
ence, to be held in Lagos, Ni-
geria beginning January 11,

While complete figures were
not immediately available, it ap-
peared certain that a minimum of
18 countries would be represent-
ed at the meet — and probably
more,

Purposes ofthe so-called Com-
monwealth summit is to review
the sanctions so far undertaken
against the illegal white settler
regime of Jan Smith and consider
what other steps could be taken
to bring down his racist govern=
ment,

Spearheading the drive for such
a conference were the African
members of the Commonwealth,

DR. KENNETH KAUNDA

and the decision for the parley to
go ahead came amidst conflicting
reports that a “Rhodesia dead-
line” had been set,

Commenting on the Rhodesian
problem, Zambia’s Prime Min-
ister Kenneth Kaunda stated at
the year end that Britain -and
Zambia have agreed on a time
limit to bring down the Smith
regime by economic sanctions
and, that if these fail, military
means would have to be con-
sidered,

Kaunda said he could not re=
veal when the time limit would
expire. Zambia’s own’ limit,
which he had earlier set, expired
shortly before the close of 1965,

“But the British government
came back with certain arguments
which we thought reasonable, so
we are waiting for that date,”
he told a news conference in
Lusaka, Asked whether Britain
had agreed with the new time
limit, he said: “This time was
suggested by the British govern-
ment and I had to alter my own,
I think so, I had taken it as
agreed,”

But if such agreement had been
reached, the Wilson government
was being extremely reticent
about admitting it, Arthur Bot-
tomley, Commonwealth Relations
Secretary, commented on behalf
of the government that it was
not possible to be “precise about
the time it will take” for sanc-
tions against Rhodesia “to exert
a decisive effect.”

Meanwhile, Premier Verwoerd
of South Africa has attacked the
economic sanctions against the
Smith regime and announced that:
South Africa would not join in
them,

men, Literally hordes of these
are going about the province
persuading workers to draw out
their money and invest it in
mutuals, This is done with ridicu-
lous promises of high rates of
return,

The salesmen of one major
fund calmly assure potential cus=
tomers that their fund pays the
equivalent of 17 percent com-
pound interest,

Now, it is obvious that a couple
of thousand dollars left to ac-
cummulate at 17 percent for 15
or 20 years willbuy a larger pen-
sion than the same amount left
in a conventional pension plan,
Supported by impressive looking
prospectuses and suitable quotes
from the Financial Post, this pitch
frequently does the trick,

What is a
Mutual Fund?

A mutual fund is a kind of
syndicate which peels the savings

of its subscribers for the pur-,

chase of a diversified portfolio
of common stocks. In the usual
contract, as dividends are re-
ceived they are credited to the
subscribers and used to purchase
additional stock,

When a subscriber wishes to
withdraw from the fund, he is
paid off at the “net asset value”—
that is, at the market value on
that particular day of his share
of the pooled portfolio,

Thus, his equity in the fund
at any given time will reflect
and be influenced by two factors:
(1) Capital gains (or losses) in
accordance with the fluctuations
of the stock market, and (2)
Accumulated dividends,

The argument is that an in-
dividual buying common stocks
is gambling, but that a large
fund which can buy an assort-
ment of stocks is taking com-
paratively little risk, since (it
is alleged) the average tendency
of stocks is to go up.

How and why
did they grow?

The first mutual funds were
started in Canada about 1950 and
they have now grown to be a
billion dollar business,

Their rapid growth has been
accomplished on the basis of
demonstrated results. Depend-

ing on what time interval is

chosen, various mutual funds can
show returns averaging eight, ten
or 12 percent per year,

Salesmen representing one fund
have approached people with
prospectuses showing 17 percent,

This result, however, is ac-
complished by assuming the pur-
chase was made at the bottom of
the 1957 market slump and sold
at the all-time peak of the market
in the spring of 1965,

Alter the purchase and sale
dates by one year and the rate
of return is approximately halved!

The biggest mutual fund shows
on the average over the period
1950 to 1962 an average re-
turn of eight percent, including
capital gains,

Socineseresnesiinemsinsenitassaioacdasn take eee ee

Don’t rush to cash in your pension

F Mutual Funds—a modern Ponzi

Well, what’s wrong with a re~
turn of eight percent, the average
worker might ask? There are few
investments available to small
investors that will equal it,

The joker is that the period
1950 to 1965, which encompasses
the entire life span of the mutual
fund business, has been one of
unprecedented stock market
gains,

In the past, stocks have moved
up and down in accordance with
general business conditions but
with a slow, long term upward
tendency, But from 1950 to 1965,
stocks on the average more than
tripled in price—-a bigger gain
than they had made in the pre-
ceding half century!

This phenomenal rise in stock
prices can be attributed to two
causes—gradual inflation and the
activity of the mutual funds, As
long as there is a high demand
for stocks, their price will tend
to rise. With hordes of salesmen
going about signing people up for
the mutuals, large sums of money
are coming into the mutual fund
offices every month for the speci-
fic purposes of buying stocks.

This keeps the price of stocks
rising. The price of the stocks
enhances the capital gains of the
mutuals and makes them still
more attractive. Thus, the up-
ward cycle feeds on itself,

Can it go on ‘indefinitely? Of
course not, In this respect, it is
reminiscent of the old time
Ponzi racket,

It will be recalled that Ponzi
lured investors to place their
money with him on the promise
of 20 percent interest. And the

original investors got their 4

percent, all right. This was a0

complished quite simply—meré!)
by giving them back one-fill
of their own money,

However, when the word
around that Ponzi actually
paying 20 percent interest, mo
flooded into his office, Neverthe
less, it would have been onlJ)
a short time until the pyramidint
interest payments exceeded thé
new money coming in and th
‘racket would have collapsed.

Ponzi averted that catastrophe
by fleeing to Brazil and taking
the investments with him,

The mutual fund promoters at
not going to decamp, Nor wi
they go bankrupt, because the
liability to their investors w
automatically drop if and w!
the market drops, But mati

people may nevertheless los¢)

their savings,

Are stocks
ever ‘sound’?

One barometer of the sound
ness of the price of stocks is th
dividend rate, If stocks rise ove
a period of time and still pa’
dividends which remain a mor
or less constant percentage 0

the current price, that price may |

be considered sound, But in this
period, that has been far from
true,

In the early 1950s, the dividend’
rate of the leading mutuals was"
approximately five percent, In
1965, it is approximately two and
one-half percent, This means that
the capital gains of past years
have not been based on a real
rise in the value of the assets, —
but merely on the speculative —

hope of further capital gains in

the future.

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pt

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January 7, 1966—PACIFIC TRIBUNE—Page 12