The Senate banking committee this week became the latest in a string of authoritative voices recommending a change in course for the fund, which is to hold the pension savings of millions of Canadians. Not that Canadians themselves had any choice in the matter: their kindly federal and provincial governments have decided to annex an ever larger share of their earnings over the next few years and invest it on their behalf. This is sometimes known as "CPP reform." On present projections, the fund will be worth more than $150-billion within a decade, which would make it bigger by far than any pension fund the country has ever seen. And on present policy, at least 80 per cent of that money must be invested in Canada -- the same rule that applies to private funds and RRSPs.

This is plainly madness. Indeed, if followed it will put the directors of the new CPP Investment Board in direct violation of their own terms of reference, under which they are to adhere to the "prudent person" standard of responsibility. For no person of even middling prudence would make such a massive bet on the fortunes of just one country, representing as it does a mere 3 per cent of world capital markets. Nor is this merely imprudent: it is well known that a more diverse international portfolio produces higher returns as well as lower risk.

So the senators duly recommended that the 20 per cent ceiling on the fund's foreign content be lifted, rising first to 30 per cent over five years, thereafter ceasing to apply at all. Various experts have made more or less the same suggestion with regard to private pensions. And the minister of Finance has slapped down every one of them, with much the same line: "I think inevitably that will happen," as he said in response to the Senate committee, "but I don't really believe the timing is right at the present time." On the contrary, the timing is perfect. Reform of the foreign content limit has until now been held back by the fear that domestic stock prices, puffed up to artificial heights by a captive investing public, might collapse in a sudden rush to the exits. But in this case reform would be coincident with the infusion of tens of billions of dollars in new investment, as the CPP, which previously held only provincial bonds, is brought to market. The first would tend to depress prices; the second would tend to increase them. The two would largely offset each other.

Without lifting the ceiling, certainly, the arrival of the CPP will dangerously inflate stock prices.

Worse, it stands to exert a wholly unhealthy dominance over domestic capital markets. If it divides its investments between stocks and bonds in the same way as most pension funds, it has been calculated that by 2016 the CPP would own fully 15 per cent of the Canadian stock market.

There has not been a nationalization on this scale since the Second World War.

There is a way to forestall the politicization of investment decisions that is the inevitable -- I say again: inevitable -- result whenever such a tempting pile of money is placed within reach of governments. It is to insist that the fund follow a "passive" investment strategy: that is, it simply buys every listed stock, in proportion to its share of total market capitalization. This has the added advantage of ensuring the fund performs no worse than the index, which is more than most actively managed funds can claim.

As it happens, that is how the CPP fund is to be invested -- for the first three years. But there is no guarantee that this policy will be maintained after that.

The only real way to insure that Canadians' pension contributions are not diverted to political ends is to keep them out of government hands altogether. That is, rather than toss them all into a single kitty, each individual's CPP contributions would be invested in his or her own tax-free savings account, rather like an RRSP.

Abolishing the foreign content limit and insisting on a passive investment strategy will limit much of the harm the CPP Investment Fund might do. But an RRSP-based system is the best way to reduce the risk to our pensions -- an argument I wil take up further in another column.