Annual Report of the Canada Pension Plan -
The Governor General of Canada
May it please Your Excellency:
We have the pleasure of submitting the Annual Report of the Canada Pension Plan for the fiscal year – .
James M. Flaherty
Minister of Finance
Minister of Employment and Social Development
– at a glance
- The maximum pensionable earnings of the Canada Pension Plan (CPP) increased from $50,100 in to $51,100 for . The contribution rate remained unchanged at 9.9 percent.
- 5 million beneficiaries received 5.9 million benefits each month from the CPP, with a total annual value of $35.6 billion.
- 4.2 million CPP retirement benefits were paid each month, totalling $26.6 billion annually.
- Benefits for 1 055 000 surviving spouses or common-law partners and 71 000 children of deceased contributors were paid each month, totalling $4.4 billion annually.
- Benefits for 330 000 people with disabilities and 86 000 of their children were paid each month, totalling $4.3 billion annually.
- 138 000 death benefits were paid annually, totalling $0.3 billion.
- More than 450 000 post-retirement benefits were paid each month in early , totalling $10 million.
- Operating expenses amounted to $1.076 billion, or 3.02 percent of the $35.6 billion in benefits. This compares favourably with operating expenses for other large pension plans.
- As at , total CPP Investment Board net assets were valued at $183.3 billion. These assets consisted primarily of public and private equities, fixed income instruments, real estate, inflation-linked bonds, infrastructure and securities.
Canada pension plan in brief
If you have worked at any time since the age of 18, you have likely contributed to the Canada Pension Plan (CPP) or to its sister plan, the Quebec Pension Plan (QPP).
The CPP is managed jointly by the federal and provincial governments. Quebec manages and administers its own comparable plan, the QPP, and participates in decision-making for the CPP. Benefits from either plan are based on pension credits accumulated under both plans.
For more information on the QPP, visit the Retraite Québec's website
The CPP is financed through investment income and through mandatory contributions from employees, employers and those who are self-employed.
Individuals start contributing to the Plan at age 18, or from the Plan's beginning in , whichever is later. The first $3,500 of annual earnings are exempted from contributions. Contributions are then made on earnings between $3,500 and $51,100, which is the ceiling for .
Employees contribute at a rate of 4.95 percent and employers match that with an equal contribution. Self-employed individuals contribute at the combined rate for employees and employers of 9.9 percent on net business income, after expenses.
While many Canadians associate the CPP with retirement pensions, the CPP also provides disability, death, survivor, children's and post-retirement benefits. The CPP administers the largest long-term disability plan in Canada. As well as paying monthly benefits to eligible contributors with a disability and their children, the CPP also helps some beneficiaries return to the workforce through vocational rehabilitation services and return-to-work support.
Most benefit calculations are based on how much and for how long a contributor has paid into the CPP and, in some cases, the age of the beneficiary. With the exception of the post-retirement benefit, benefits are not paid automatically—everyone must apply.
Calculation of contributions and benefits for 2013
- Year's maximum pensionable earnings
- Year's basic exemption
- Year's maximum employee/employer contribution (4.95%)
- Year's maximum self-employed person's contribution rate (9.9%)
Benefits and expenditures
Given the aging of our population, the number of people receiving CPP benefits has increased steadily over the past decade. As a result, expenditures have also increased. Figure 1 shows the yearly increases in benefits and expenditures during – ; Figure 2 shows the percentage of expenditures by type of benefit.
To be eligible for a retirement pension, the applicant must have made at least one valid contribution to the Plan and reached the age of 60.
Retirement pensions represent nearly 75 percent of the total benefit amount paid out by the CPP in – . The amount of contributors' pensions depends on how much and for how long they have contributed and at what age they begin to receive the benefits. In , the maximum monthly retirement pension was $1,012.50, and the average payment in – was $527.56
Canadians are living longer and healthier lives, and the transition from work to retirement is increasingly diverse. The CPP offers flexibility for both older workers and their employers with respect to the age of retirement. Contributors can begin receiving the CPP retirement pension as early as age 60. The monthly payment is reduced if it begins before age 65, and increased if it begins after age 65 up to age 70.
Adjustments for early and late receipt of a retirement pension
CPP contributors can choose the right time for their retirement based on their individual circumstances and needs. Contributors have the flexibility to take their retirement pension earlier or later than the normal age of 65. In order to ensure fair treatment of contributors and beneficiaries, those who take their retirement pension after age 65 receive a higher amount. This adjustment reflects the fact that these beneficiaries will, on average, receive their benefit for a shorter period of time. Conversely, those who take their retirement pension before age 65 receive a reduced amount, reflecting the fact that they will, on average, receive their benefit for a longer period of time.
Since , a gradual change in these adjustment factors has been occurring. By , the adjustment factors will have reached their actuarially fair levels. The new factors will ensure that, on average, payments of retirement pensions are the same over time regardless of when individuals choose to begin their pensions.
Figure 1: CPP - Benefits and expenditures by fiscal year
Text description of Figure 1: CPP – Benefits and Expenditures by Fiscal Year
|Year||Number of benefits |
|Benefit expenditures |
(in $ billions)
Figure 2: CPP – Percentage of expenditures by benefit type 2012–2013
Text description of Figure 2: CPP – Percentage of Expenditures by Benefit Type -
|Children of contributors with disabilities||7|
|Children of deceased contributors||5|
Retirement pension taken before age 65
In , the adjustment factor for early retirement began to increase. In , those who started receiving their retirement pension before age 65 had the amount permanently reduced by 0.52 percent per month. The maximum reduction was 31.2 percent for those who took their retirement pension when they turned 60. In , this adjustment factor is 0.54 percent per month. By it will be 0.6 percent per month, which means that a contributor who starts receiving a retirement pension at age 60 will receive 36 percent less than if it were taken at age 65.
Retirement pension taken after age 65
In , the adjustment factor for late retirement began to increase. In , those who started receiving their retirement pension after age 65 had the amount permanently increased by 0.64 percent per month. In onward, the adjustment factor is 0.7 percent per month, which means that a contributor who delays receiving a retirement pension until age 70 will receive 42 percent more than if it were taken at age 65.
The post-retirement benefit is a new CPP benefit that is payable for life. It allows CPP retirement pension beneficiaries who keep working to increase their retirement income by continuing to participate in the CPP.
Canadians working outside of Quebec who receive a CPP or QPP retirement pension began making CPP contributions toward the post-retirement benefit on . These contributions are mandatory for recipients of CPP or QPP retirement pensions who are working and who are under 65 years of age. Recipients of CPP and QPP retirement pensions who are between ages 65 and 70 can choose not to contribute. No contributions are made after age 70. Contributions toward the post-retirement benefit do not create eligibility for or increase the amount of other CPP benefits. Payment of the benefit started in . The maximum benefit amount for was $25.31 per month.
Disability benefits provide basic earnings replacement to CPP contributors who cannot work due to a severe and prolonged disability. A contributor is deemed disabled if he or she suffers from a physical or mental condition that is severe and prolonged. Dependent children of disabled beneficiaries may also be eligible for children's benefits.
In – , disability benefits were paid to 330 000 beneficiaries and to 86 000 children of beneficiaries. Disability benefits represented 12 percent of the total benefits paid out by the CPP in – .
The disability benefit includes a monthly flat rate, which was $453.52 in . It also includes an earnings-related portion, which is 75 percent of the retirement benefit that would have been earned had the contributor not become disabled. In , the maximum disability benefit was $1,212.90 per month. The average payment in – was $845.82.
The benefit paid to dependent children of disabled beneficiaries is a flat rate. In , the amount was $228.66 per month. To be eligible, children must be either under age 18, or between ages 18 and 25 and in full-time attendance at school or university.
Survivor benefits are paid to the surviving spouse or common-law partner of the contributor and his or her dependent children. The benefit amount varies depending on a number of factors, including the age of the surviving spouse or common-law partner at the time of the contributor's death and whether the survivor also receives other CPP benefits.
In , there were over 1 million survivors receiving benefits. In – , survivor benefits represented nearly 13 percent of the total benefits paid out by the CPP.
The maximum survivor's pension for those under age 65 was $556.64 per month in . This includes a flat-rate portion of $176.95 and an earnings related portion, which is 37.5 percent of the deceased contributor's retirement pension. The maximum amount at age 65 and over was $607.50, consisting of 60 percent of the deceased contributor's retirement pension. For – , the average payment for all survivor benefits was $324.40.
The benefit paid to dependent children of deceased contributors is a flat rate. In , the amount was $228.66 per month. To be eligible, children must be either under age 18, or between ages 18 and 25 and in full-time attendance at school or university.
The CPP death benefit is a lump-sum payment that amounts to six times the amount of the deceased contributor's monthly retirement pension, up to a maximum of $2,500. In – , death benefit payments represented less than one percent of the total benefits paid out by the CPP. The average payment was $2,281.06.
The CPP includes provisions that help to compensate for periods when individuals may have relatively low or no earnings. Dropping low or zero earnings from the calculation of average earnings increases the amount of one's CPP benefit.
The general drop-out provision helps to offset periods of low or no earnings due to unemployment, schooling or other reasons. For benefits starting in or , 16 percent, or up to 7.5 years, of lowest earnings can be dropped. In , this will be raised to 17 percent.
Child Rearing Provision
The Child Rearing Provision excludes from the calculation of benefits the periods during which contributors have remained at home, or have reduced their participation in the workforce, to care for children under the age of seven. Until the child reaches seven years of age, every month following the birth of the child can be excluded from the benefit calculation, provided the contributor meets all criteria, including low or no earnings. It may also assist in meeting contributory requirements.
Periods during which individuals are disabled in accordance with the CPP or QPP legislation are not included in their contributory period. This ensures that individuals who are not able to pursue any substantially gainful work are not penalized.
This provision may help those who continue to work and contribute to the CPP after age 65. It allows periods of relatively low earnings before age 65 to be replaced by higher earnings after age 65.
The CPP also includes many progressive features that recognize family and individual circumstances. These features include pension sharing, credit splitting, portability and indexation.
Pension sharing allows spouses or common-law partners who are together and receiving their CPP retirement pensions to share a portion of each other's pensions. If only one person is receiving a pension, it can be shared between them. The amount that is shared depends on the time the couple has lived together and their joint CPP contributory period. Pension sharing affords a measure of financial protection to the lower-earning spouse or common-law partner. Also, while it does not increase or decrease the overall pension amount paid, it may result in tax savings. Each person is responsible for any income tax that may be payable on the pension amount they receive.
When a marriage or common-law relationship ends, the CPP credits accumulated by the couple during the time they lived together can be divided equally between them, if requested by or on behalf of either spouse or common-law partner. This is called "credit splitting." Credits can be split even if only one partner paid into the Plan. Credit splitting may increase the amount of CPP benefits payable, or even create eligibility for benefits.
Credit splitting permanently alters the Record of Earnings, even after the death of a former spouse or common-law partner.
No matter how many times workers change jobs, and no matter which province they work in, CPP and QPP protection remains uninterrupted.
CPP payments are indexed to the cost of living. Benefit amounts are adjusted in January of each year to reflect increases in the Consumer Price Index published by Statistics Canada. This is particularly valuable given the increasing life expectancy of Canadians. While many Canadians will live longer than expected, the value of CPP benefits is protected against inflation.
Reconsideration and appeals process
Clients who are not satisfied with an initial decision on their CPP application may ask the Minister of Employment and Social Development to reconsider, or administratively review, the decision. The majority of reconsideration requests pertain to disability benefit applications.
In – , Service Canada issued approximately 16 500 reconsiderations of decisions related to CPP benefits, division of pension credits and pension sharing. Of these, approximately 5 300 reconsidered decisions were issued in favour of clients.
Clients who are not satisfied with the Minister's reconsidered decision may appeal. Prior to , the first level of appeal was to a Review Tribunal, and the second level of appeal was to the Pension Appeals Board.
On , the Review Tribunal and the Pension Appeals Board were replaced by the newly-formed Social Security Tribunal.
Prior to : Review Tribunal and Pension Appeals Board
The Review Tribunal was an administrative tribunal that operated at arm's length from the government. It was composed of three people chosen by the Commissioner of Review Tribunals from a panel of 100 to 400 part-time members appointed by the Governor-in-Council.
Hearings were held in over 110 locations across Canada. Clients could appear on their own behalf or with representation, while a Service Canada representative would appear on behalf of the Minister. Both the hearings and the decisions were private. In – , the Office of the Commissioner of Review Tribunals received 5 297 CPP appeals and held 3 201 hearings. Tribunals issued 3 116 decisions, of which 1 183 were in favour of the client. In addition, 622 cases were resolved as a result of settlements.
If either a client or the Minister was not satisfied with a Review Tribunal decision, they could request "leave to appeal" (or permission for a hearing) to the Pension Appeals Board (PAB). The PAB was an arm's length administrative tribunal whose members were judges or former judges of provincial superior courts or federal courts. PAB hearings were held in major centres across Canada. Clients could appear on their own behalf or with representation, while the Minister was represented by a lawyer. Both the hearings and the decisions were publicly accessible.
In – , the PAB received 645 requests for leave to appeal, of which 63 percent were granted leave to proceed to a hearing. In – , the PAB issued 915 final decisions, of which 504 (or 55 percent) were decided in favour of the client.
Decisions of the PAB could be brought before the Federal Courts for judicial review.
After : Social Security Tribunal
The Budget announced that the four existing federal social security administrative tribunals—the Review Tribunal, the PAB, the Employment Insurance Board of Referees and the Office of the Umpire—would be replaced with a single-window decision body called the Social Security Tribunal (SST). The SST would continue to provide a fair, credible and accessible appeals process, while also reducing the cost of appeals.
As of , all CPP appeals for which the Tax Court of Canada does not have jurisdiction are submitted to the SST. Appeals that were filed with the Review Tribunal and PAB but not heard as of , were also transferred to the SST.
Like the Review Tribunal and the PAB, the SST is an independent administrative tribunal that makes decisions at arm's length from the Minister. All decisions are made by a single Tribunal member appointed by the Governor-in-Council. Hearings may be held by way of written submissions, or by appearance of the parties via telecommunication or in person.
The SST is composed of two levels of appeal: a General Division and an Appeal Division. Clients who are not satisfied with a reconsidered decision made by the Minister may file an appeal with the General Division, where the matter will be heard completely anew and new information can be submitted.
If either a client or the Minister is not satisfied with the decision made by the General Division, they may request leave to appeal to the Appeal Division. The Appeal Division must grant leave to appeal in order for the appeal to proceed. The appeal is limited to issues of fairness or jurisdiction, and errors in law or fact, and new information cannot be submitted.
Decisions of the Appeal Division can be brought before the Federal Courts for judicial review.
Ensuring financial sustainability
As joint stewards of the CPP, the federal and provincial Ministers of Finance review the CPP's financial state every three years and make recommendations as to whether benefits and/or contribution rates should be changed. They base their recommendations on a number of factors, including the results of an examination of the CPP by the Chief Actuary. The Chief Actuary is required under the legislation to produce an actuarial report on the CPP every three years (in the first year of the legislated ministerial triennial review of the Plan). The CPP legislation also provides that, upon request of the Minister of Finance, the Chief Actuary prepares an actuarial report any time a bill is introduced in the House of Commons that has, in the view of the Chief Actuary, a material impact on the estimates in the most recent triennial actuarial report. This reporting ensures that the long-term financial implications of proposed Plan changes are given timely consideration by the Ministers of Finance.
Changes to the CPP legislation governing the level of benefits, the rate of contributions or the investment policy framework can be made only through an Act of Parliament. Any such changes also require the agreement of at least two-thirds of the provinces, representing at least two-thirds of the population of all the provinces. The changes come into force only after a notice period, unless all of the provinces waive this requirement, and only after provincial Orders in Council have provided formal consent by the provinces to the federal legislation enacting the changes. Quebec participates in decision-making regarding changes to the CPP legislation, even though it administers its own comparable plan. When the CPP and QPP were established, it was considered important that Quebec be involved in changes to the CPP to ensure a high degree of portability of QPP and CPP benefits across Canada.
The results of the most recent ( – ) Triennial Review by the federal, provincial and territorial Ministers of Finance were announced as part of the federal Budget: Jobs, Growth and Long-term Prosperity – Economic Action Plan , which was tabled before Parliament on . The review confirmed the financial sustainability of the CPP over the long term at the current contribution rate of 9.9 percent. Canadians can count on the CPP to be there for them when they retire. The finance ministers also agreed to several technical amendments to the CPP legislation and CPP Investment Board regulations. The technical amendments include legislative changes required to modernize the CPP as part of the previous – Triennial Review. The technical amendments will not change the level of CPP benefits or the contribution rate.
To read the conclusions of the – Triennial Review in Economic Action Plan , read the Economic Action Plan
Modernization of the CPP
Changes were made to the CPP to modernize the Plan. These changes resulted from the – Triennial Review and formed part of the Economic Recovery Act (stimulus), Chapter 31, Statutes of Canada, , which received Royal Assent on .
The changes, which are described in more detail under Benefits and Expenditures, include the following:
- The CPP retirement pension adjustment factors for early and late retirement are gradually being changed for those who begin receiving their pension before or after age 65. All changes will be implemented by .
- By , the periods of low earnings that can be excluded from the retirement benefit calculation will be increased by up to one year.
- In , the work cessation test was eliminated.
- The new post-retirement benefit was introduced for people contributing to the CPP, while in receipt of a CPP/QPP retirement pension. The first post-retirement benefits will be paid in .
To read more about the recent amendments to the CPP, visit the Service Canada website
The Twenty-fifth Actuarial Report on the Canada Pension Plan was tabled in the House of Commons on . The Report presents the financial status of the CPP as of , and takes into account the recent changes to modernize the Plan, as well as the actual demographic and economic experience since . According to the Report, the CPP is expected to meet its obligations and remain financially sustainable over the long term under a contribution rate of 9.9 percent.
A panel of three independent Canadian actuaries, selected by the United Kingdom Government Actuary's Department (GAD) through an arm's length process, reviewed the Twenty-fifth Actuarial Report on the Canada Pension Plan. The external panel's findings confirmed that the work performed by the Office of the Chief Actuary (OCA) on the Report met all professional standards of practice and statutory requirements, and stated that the assumptions and methods used were appropriate and reasonable. In addition to these main conclusions, the panel made a number of recommendations regarding the preparation of future actuarial reports. The recommendations dealt with various aspects of the report, including data, methodology, assumptions, communication of results and other actuarial issues. The GAD concluded that the opinions given by the panel adequately addressed all the main issues. As a result, Canadians can have confidence in the results of the Twenty-fifth Actuarial Report on the Canada Pension Plan and the conclusions reached by the Chief Actuary about the long-term financial sustainability of the Plan.
The 26th Actuarial Report on the Canada Pension Plan, which reports on the financial status of the Plan as of , is due by the end of .
To view the CPP's actuarial reviews and studies, visit the Office of the Superintendent of Financial Institutions website
When it was introduced in , the CPP was designed as a pay-as-you-go plan, with a small reserve. This meant that the benefits for one generation would be paid largely from the contributions of later generations. This approach made sense under the demographic and economic circumstances of the time, due to the rapid growth in wages and labour force participation and the low rates of return on investments.
However, demographic and economic developments, as well as changes to benefits in the following three decades, resulted in significantly higher costs. When federal, provincial and territorial Ministers of Finance began their review of the CPP's finances in , contribution rates, already legislated to rise to 10.1 percent by , were expected to rise again—to 14.2 percent by —to continue to finance the CPP on a pay-as-you-go basis. Continuing to finance the CPP on the same basis as in previous years would have meant imposing a heavy financial burden on the future Canadian workforce. This was deemed unacceptable by the participating governments.
Amendments were therefore made in to gradually raise the level of CPP funding by: increasing contribution rates over the short term; reducing the growth of benefits over the long term; and investing cash flows not needed to pay benefits in the private markets through the CPP Investment Board (CPPIB), in order to achieve higher rates of return. A further amendment was included to ensure that any increase in benefits or new benefits provided under the CPP would be fully funded. The reform package agreed to by the federal and provincial governments in included:
- The introduction of steady-state funding. This replaced pay-as-you-go financing to build a reserve of assets and stabilize the ratio of assets to expenditures over time. According to the Twenty-fifth Actuarial Report on the Canada Pension Plan, the level of assets under steady-state funding is projected to stabilize at a level equal to about five years of expenditures. Investment earnings from this pool of assets will help pay benefits as the large cohort of baby boomers retires. Steady-state funding is based on a constant rate that finances the CPP without the full-funding requirement for increased or new benefits. The steady-state rate was determined to be 9.84 percent in the Twenty-fifth Actuarial Report on the Canada Pension Plan.
- The introduction of incremental full funding. This means that changes to the CPP that increase or add new benefits will be fully funded. In other words, benefit costs are paid as the benefit is earned and any costs associated with benefits that are already earned and not paid for are amortized and paid for over a defined period of time, consistent with common actuarial practice. In the Twenty-fifth Actuarial Report on the Canada Pension Plan, the full-funding rate was determined to be 0.02 percent for – , and 0.01 percent thereafter. The minimum contribution rate required to fund the CPP is the sum of the steady state and full-funding rates. The minimum contribution rate was determined to be 9.86 percent before , and 9.85 percent from onward.
Both of these funding objectives were introduced to improve fairness across generations. The move to steady-state funding eases some of the contribution burden on future generations. Under full funding, each generation that receives benefit enrichments is more likely to pay for them in full and not pass on the cost to future generations. These full-funding requirements were made operational through new regulations that came into effect with the passage of An Act to amend the Canada Pension Plan and the Old Age Security Act ( ).
According to the financial projections of the Twenty-fifth Actuarial Report on the Canada Pension Plan, the annual amount of contributions paid by Canadians into the CPP is expected to exceed the annual amount of benefits paid out up to and including , and to be less than the amount of benefits thereafter. Funds not immediately required to pay benefits will be transferred to the CPPIB for investment. Plan assets are expected to accumulate rapidly over this period and, over time, will help pay for benefits as more and more baby boomers begin to collect their retirement pensions. In and thereafter, as baby boomers continue to retire and benefits paid begin to exceed contributions, investment income from the accumulated assets will provide the funds necessary to make up the difference; however, contributions will remain the main source of funding for benefits.
The amended financing policy moved the CPP away from pay-as-you-go financing (with a small reserve) toward fuller funding. Although the unfunded liability may be used as a measure of the CPP's financial status, the key measure of the financial health of the CPP is the adequacy and stability of the CPP's steady-state contribution rate and, thus, the legislated rate. The Office of the Chief Actuary (OCA) examined this in the Twenty-fifth Actuarial Report on the Canada Pension Plan.
In the Report, the OCA provided comparisons of the assets, actuarial liabilities, resulting unfunded liabilities and the relative percentages of the assets of the CPP under two methods. The first method, referred to as the closed group method, which considers only current participants and is consistent with how pension plans are valued in the private sector, reveals that CPP assets represented 14.5 percent of the actuarial liability (with an unfunded liability of $748 billion) as at . The second method, referred to as the open group method, which considers the benefits and contributions of both current and future plan participants and is consistent with the partial funding approach of the CPP, reveals that CPP assets represented 99.7 percent of the actuarial liability (with an unfunded liability of $6.9 billion) as at .
The open group measure is viewed by the OCA as being the most appropriate in the context of the CPP and confirms the financial sustainability of the CPP under a 9.9 percent contribution rate. A study, titled Measuring the Financial Sustainability of the Canada Pension Plan: Actuarial Study No. 10, is available on the Office of the Superintendent of Financial Institutions (OSFI) website.
If, at any time, the legislated contribution rate is lower than the minimum contribution rate, and if the Ministers of Finance do not recommend either increasing the legislated rate or maintaining it, then legislative provisions would apply to sustain the CPP. An increase in the legislated rate would be phased in over three years and benefit indexation would possibly be suspended until the following triennial review. By law, any further enhancement of the CPP must be fully funded. The next triennial review in – will examine the financial status of the CPP based on the results of the next triennial actuarial report.
The CPP uses the accrual basis of accounting for revenues and expenditures. This method gives administrators a detailed financial picture and allows accurate matching of revenue and expenditures in the year in which they occur.
A separate account, the CPP Account, has been established in the accounts of the Government of Canada to record the financial elements of the CPP (i.e. contributions, interest earned, pensions and other benefits paid, as well as operating expenditures). The CPP Account also records the amounts transferred to, or received from, the CPP Investment Board. Spending authority is limited to the CPP's net assets. The CPP assets are not part of the federal government's revenues and expenditures.
In keeping with An Act to Amend the Canada Pension Plan and the Canada Pension Plan Investment Board Act (Bill C-3), which came into force on , the CPPIB is responsible for investing the remaining funds after the CPP operational needs have been met. The CPP Account's operating balance is managed by the Government of Canada.
CPP Investment Board
Created by an Act of Parliament in , the CPP Investment Board (CPPIB) invests funds not required by the CPP to pay current benefits. Operating at arm's length from the federal government, the CPPIB is governed and managed independently of the CPP. Although it functions within the private-sector financial markets, the CPPIB was specifically designed by the federal, provincial and territorial Ministers of Finance to maintain significant public accountability. It is a professional investment management organization, headquartered in Toronto, with offices in London and Hong Kong. The CPPIB is legislated to manage funds transferred from the CPP in the best interests of CPP contributors and beneficiaries. The CPPIB invests CPP assets to achieve a maximum rate of return, without undue risk of loss. It must also consider the factors that affect the CPP's funding and its ability to meet its financial obligations.
The CPPIB has a long-term investment horizon. The Chief Actuary of Canada conducts a financial review of the CPP every three years. According to his latest triennial review released in , the Chief Actuary reaffirmed that the CPP remains sustainable at the current contribution rate of 9.9 percent throughout the 75-year period of his report.
The Chief Actuary's report also indicates that CPP contributions are expected to exceed annual benefits paid until , when a portion of the investment income from CPPIB will be needed to help pay benefits.
The Chief Actuary is currently undertaking a triennial review of the CPP as at , and is expected to release his report in the fall of .
CPP assets and cash management
The legislation (Bill C-3) also stipulates that any excess cash to the CPP must be transferred to the CPPIB once the benefit and administration expenses have been paid, to gain a better return. The cash flow forecasts of the CPP determine the amount of funds to be transferred to or from the CPPIB, and these forecasts are updated regularly.
The CPP administration continues to work closely with the CPPIB, various government departments and banks to coordinate these transfers and manage a tightly controlled process. A control framework is in place to ensure that the transfer process is followed correctly and that all controls are effective. For instance, the CPP administration obtains confirmation at all critical transfer points and can therefore monitor the cash flow from one point to the next.
For more information on the CPPIB mandate, governance structure and investment policy, visit the Canada Pension Plan Investment Board's website.
CPP Fund net assets held by CPPIB
As at , the CPP Fund net assets totalled $183.3 billion.
Canadian assets represented 36.7 percent of the investment portfolio and totalled $67.4 billion. Foreign assets represented 63.3 percent of the investment portfolio and totalled $116.1 billion.
For the 10-year period ending , the Fund had an annualized rate of return of 7.4 percent or $77.2 billion in cumulative investment income.
Investing for our future
To fulfill its multi-generational mandate of helping to meet the long-term funding requirements of the CPP, the CPPIB focuses on its long-term investment horizon.
The CPPIB investment strategy includes diversifying the portfolio broadly—by asset class, by geographic areas and by active and passive investment programs. Investments are made in five major risk-return categories: public equities, private equities, real estate, infrastructure and fixed income instruments.
Like other major pension funds, the CPPIB looks for opportunities to allocate a portion of its assets in investments that track and surpass the general rate of inflation. These include real assets such as real estate—which includes retail, commercial and multi-family properties—and infrastructure.
The CPPIB draws on internal expertise and partnerships with external investment managers to build its global portfolio. To manage the increased complexity and geographic reach of its investment programs, the CPPIB has significantly expanded its team of specialized investment professionals since adopting its active management strategy in .
The CPPIB reports on a quarterly basis. Legislation requires the CPPIB to hold public meetings at least every two years in each of the nine provinces participating in the CPP (excluding Quebec, which operates the QPP). The purpose of these meetings is for the CPPIB to present its most recent annual report and to provide the public with the opportunity to ask questions about the policies, operations and future plans of the CPPIB.
Many individuals have lived and worked in Canada and in other countries. Canada has entered into social security agreements with other countries to help people in Canada and abroad to qualify for CPP benefits and pensions from partner countries to which they would otherwise not be entitled. Further, social security agreements enable Canadian companies and their employees who are sent to work temporarily outside the country to maintain their CPP coverage and eliminate the need to contribute to the social security program of the other country for the same work.
As of , Canada has social security agreements in force with 53 countries. In addition, three agreements have been signed and will enter into force once Canada and those countries have completed their respective legal procedures. Negotiations towards agreements are ongoing with many other countries. The names of countries with which Canada has concluded social security agreements are listed on the following page.
Table: Social security agreements
Canada has concluded social security agreements with the following countries:
|Country Name||Date of Agreement|
|Antigua and Barbuda|
|Jersey and Guernsey|
|Republic of Macedonia|
|Saint Vincent and the Grenadines|
|St. Kitts and Nevis|
|Trinidad and Tobago|
In addition, social security agreements have been signed with Brazil, Bulgaria and India. They will enter into force once Canada and each of these countries have completed their respective legal procedures.
** Limited agreement providing an exemption from the obligation to contribute to the social security system of the country for employees temporarily posted abroad. Does not contain provisions for the payment of pension benefits.
Managing the CPP
Collecting and recording contributions
All CPP contributions are remitted to the Canada Revenue Agency (CRA). The CRA also assesses and verifies earnings and contributions, advises employers and employees of their rights and responsibilities, conducts audits and reconciles reports and T4 slips. To verify that contribution requirements are met, the CRA applies a compliance and enforcement process that can vary from a computerized data match to an on-site audit.
As of , there were 1,692,335 existing employer accounts. In – , the CRA conducted 47,720 examinations to promote compliance with the requirements to withhold, report and remit employer source deductions. Employers and employees account for approximately 94 percent of contributions and the remaining 6 percent comes from the self-employed. In – , contributions amounted to $41.7 billion.
Overpayment of benefits
Consistent with its mandate to manage the CPP effectively, ESDC has procedures in place to detect benefit overpayments. During – , overpayments totalling $58 million were detected. During the year, a total of $34 million in overpayments were recovered and debts of $6 million were forgiven. All of the above figures represent a net increase of $18 million in the accounts receivable for the year.
In – , the cost to administer the CPP was approximately $1.076 billion, with ESDC accounting for $405 million. The CRA required approximately $169 million for services to the CPP; Public Works and Government Services Canada (PWGSC) required some $10 million. The OSFI, where the Office of the Chief Actuary is housed, and Finance Canada accounted for about $2 million. The CPPIB reported $490 million in operating expenses.
CPP operating expenses of $1.076 billion in – represent 3.02 percent of the $35.6 billion in benefits paid. This ratio compares very favourably with that of other pension plans. In – , the operating expenses charged by ESDC were higher than the normal level due to a one-time settlement of legal proceedings of $169 million. Therefore, the decrease of 29 percent ($162 million) of the operating expenses charged by ESDC for – compared to last year is due to the one-time settlement in the prior year, and a slight increase in the normal operation expenses during the year. Table 1 presents the CPP's operating expenses for the last two years.
Table 1: CPP Operating Expenses for – and –
|Department/Agency/Crown Corporation||Expenses (in $ millions)|
Improving service delivery
Service Canada is the Government of Canada's one-stop service delivery network. In partnership with other departments, it provides Canadians with easy access to a growing range of government programs and services.
In – , Service Canada continued its efforts to ensure that eligible Canadians are receiving public pensions and to encourage Canadians to actively plan and prepare for their own retirement. Information on the CPP is available in print, on the Internet, in person, at local offices, by phone and at electronic kiosks in government offices and public buildings.
In addition, the post-retirement benefit was incorporated into the Canadian Retirement Income Calculator to help Canadians better understand how contributions to this new benefit will further support their financial security in retirement. Individuals began making contributions towards the post-retirement benefit in , and the benefit is payable effective .
For more information on the post-retirement benefit visit the Canadian Retirement Income Calculator website.
Online service delivery
Service Canada is continually improving its self-service web-based options. Today, clients can use the internet to make inquiries, apply for a CPP retirement pension, conduct transactions and access other information on CPP benefits. CPP contributors can also view and print an official copy of their Statement of Contributions (SOC). The contributors can use this online service to request copies of their SOCs by mail. Further, CPP recipients can view and print copies of their tax slips for the current year and the previous six years. These online improvements have led to an increase in the number of Canada Pension Plan retirement applications made online.
Service Canada has responded in the past few years to growing expectations regarding service delivery. My Service Canada Account and other self-serve tools have expanded citizens' capacity to find and access information online. My Service Canada Account provides a single point of access for users to view and update their information with the CPP program.
Since , CPP clients have been able to access their personal information securely online. They can view and, if they live in Canada, update mailing addresses, phone numbers and direct deposit information, as well as view their monthly payment amounts.
Service Canada has promoted the use of online services through:
- targeted mailing of promotional inserts in existing mass mailings;
- promotional messages within standard client correspondence; and
- improved navigation to online services on the Service Canada home page.
Seasonal promotional activities are also undertaken where appropriate, such as promoting the online tax slip service during the tax-filing season. A significant increase in the use of online services is anticipated when the next generation of seniors begins to apply for benefits.
In – , Service Canada processed approximately 312,000 applications for retirement benefits, and 95 percent of these benefits were paid within the first month of entitlement, exceeding the national objective (see Table 2).
During the same period, Service Canada also processed approximately 74,000 initial applications for disability benefits. Decisions were made on 80 percent of these initial applications within 120 calendar days of receipt of the completed application.
With regard to disability benefit reconsiderations, Service Canada processed approximately 14,000 requests. Eighty-four percent of all reconsideration decisions were made within 120 calendar days of receipt of the request.
The – national results for disability benefits represent a significant improvement compared to – , where the targets were missed. These results reflect the Department's workload recovery efforts that focused on improving service levels and reducing average processing times.
A continued strong emphasis on communication with clients and their physicians helped Service Canada staff make well-informed decisions and helped disability applicants better understand the reasons for those decisions.
Table 2: Application-processing statistics
|National measure||National objective|| - |
CPP retirement applications
Percentage of benefits paid within the first month of entitlement
CPP disability (initial decisions)
Percentage of initial decisions made within 120 calendar days of receipt of applications
CPP disability (reconsideration decisions)
Percentage of reconsideration decisions made within 120 calendar days of receipt of applications
Ensuring program integrity
Income security is essential to the quality of life and well-being of Canadians. The current economic environment and an aging population pose new challenges in responding to the changing needs of Canadians and their families. Within this context, ESDC continues to embrace innovative ways to ensure and maintain the integrity of the CPP program.
To ensure the accuracy of benefit payments, the security and privacy of personal information and the overall quality of service, ESDC continues to modernize the CPP program and further enhance the efficiency, accuracy and integrity of its operations.
Meeting the expectations of Canadians—that government services and benefits be delivered to the right person, for the right amount, for the intended purpose and at the right time—is a cornerstone of ESDC's service commitment. Enhanced and modernized integrity-related activities within the CPP program are essential to meeting these expectations and ensuring the public's trust and confidence in the effective management of this program.
These activities consist of risk-analysis measures, which ensure that appropriate and effective controls are in place and that the causes of incorrect payments are understood. Integrity-related activities also include reviews of benefit entitlements and investigations to address situations in which clients are receiving benefits to which they are not entitled.
Integrity-related activities also detect and correct existing incorrect payments, reduce program costs by avoiding incorrect payments in future and identify systemic impediments to clients receiving their correct and full benefit entitlement.
As part of its efforts to address overpayment situations, ESDC has a program-integrity function that investigates suspected client error and fraud. By recovering overpayments and avoiding future incorrect payments, these integrity activities resulted in $7.6 million in accounts receivables as overpayments and prevented an estimated $7.5 million from being incorrectly paid in – . A further estimated $63.6 million has been prevented from being incorrectly paid for future years after – . The recovered overpayments are credited to the CPP, thereby enhancing the long-run sustainability of the Plan.
In , ESDC adopted the Identity Management Policy Suite, which aims to enhance program integrity while safeguarding and streamlining identity management processes in a manner that mitigates risks to personal and organizational security, and enables well-managed citizen-centered service delivery.
This Identity Management Policy Framework provides guiding principles for ESDC organizations delivering services, benefits or programs, including the CPP. It assists them in the implementation of sound identity management practices across multiple service delivery channels (in-person, phone, mail and online).
The Identity Management Policy Suite will also help reduce costs, inefficiencies and the risk of errors, as well as improve the service experience for CPP clients. The mitigation of risks associated with false or inaccurate claims regarding the true identity of an individual or an organization is fundamental to the integrity of the CPP program.
Looking to the future
Since it began in , the CPP has continually adapted to social and economic changes in order to respond to the evolving needs of Canadians. The Plan will continue to do so in the future. The measures to modernize the CPP that were contained in the Economic Recovery Act (stimulus) will be fully implemented by . In the – Triennial Review of the CPP, federal and provincial Ministers of Finance will again review the CPP's financial state and determine whether changes are required to benefits and/or contribution rates.
Given the increasing CPP workload volumes and changing service expectations of Canadians, Service Canada is developing a service improvement strategy for the CPP, in order to improve service and generate administrative efficiencies. The strategy will leverage work undertaken as part of government-wide reviews and will propose to remove ink-based signature requirements for the CPP to enable fully automated processing of CPP retirement applications.
Consolidated financial statements for the year ended
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