Annual Report of the Canada Pension Plan 2015 to 2016
Annual Report of the Canada Pension Plan 2015 to 2016 [PDF - 4.2MB]
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On this page
- Letter to commemorate the 50th anniversary of the Canada Pension Plan
- Infographic: Canada Pension Plan turns 50!
- 2015 to 2016 at a glance
- Canada Pension Plan in brief
- Beneficiaries and benefit expenditures
- International agreements
- Collecting and recording contributions
- Services to contributors and beneficiaries
- Appeals process
- Ensuring program integrity
- Ensuring financial sustainability
- Financial accountability
- Other expenses
- Looking to the future
- Canada Pension Plan consolidated financial statements
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 2015 to 2016.
The Honourable William Francis Morneau
Minister of Finance
The Honourable Jean-Yves Duclos
Minister of Families, Children and Social Development
Letter to commemorate the 50th anniversary of the Canada Pension Plan
Over the 50 years since its inception on January 1, 1966, the Canada Pension Plan (CPP) has been guided by the principle that all working Canadians deserve the opportunity to retire with dignity.
This principle continues to inspire Canada’s governments, which, as joint stewards of the CPP, have come to a historic agreement to enhance the Plan, ensuring that future generations of Canadians can count on a strong public pension system in their retirement years.
Once it is fully phased in, the enhanced CPP will replace one third of the pensionable earnings of contributors, rather than the one quarter provided by the current CPP. It will also increase the band of earnings protected by the CPP by raising the maximum earnings limit by 14%. As a result of these changes, the enhanced CPP will provide up to 50% more income for future retirees.
Helping Canadians achieve a safe, secure and dignified retirement is a central part of the Government of Canada’s plan to support the middle class and those working hard to join it. A stronger CPP is a core component of this plan, and we are very proud of the collaboration with provincial colleagues to improve the retirement income security of current and future generations.
While this historic agreement represents a significant reform for contributors and beneficiaries in the 50-year history of the CPP, it is just one example of how the Plan has adapted over time to respond to the evolving needs of Canadians. As can be seen in the infographic, the CPP has kept pace with societal and economic changes. It remains an important part of the lives of Canadians by protecting eligible contributors and their families in the event of the retirement, death or disability of the contributor.
Today, the CPP is respected internationally and, together with Old Age Security and Guaranteed Income Supplement benefits, widely credited with reducing the rate of poverty among Canadian seniors. In 2015 to 2016, the CPP paid out $40.8 billion in benefits to support a safe, secure and dignified retirement for 5.5 million Canadians.
CPP assets are managed by the Canada Pension Plan Investment Board (CPPIB), a professional investment management organization that operates at arm’s length from governments and independently of the CPP.
The CPPIB’s mandate is to invest in the best interests of CPP contributors and beneficiaries and to maximize investment returns without undue risk of loss. The CPPIB has been acclaimed by international bodies such as the World Bank as a model of an independent, transparent and accountable public pension fund management organization.
On March 31, 2016, the CPP Fund, managed by the CPPIB, totalled $278.9 billion. The CPP Fund is ranked as one of the 10 largest retirement funds in the world, allowing the CPPIB to undertake large transactions with which few others can compete. For the 10-year period ending March 31, 2016, the CPP Fund has netted cumulative investment income of $125.6 billion for its beneficiaries, $9.1 billion during 2015 to 2016 alone, after all CPPIB costs. The Fund has also realized a 6.8% annualized net nominal rate of return over the same 10-year period.
In his September 2016 report to Parliament, the Chief Actuary of Canada confirmed that the CPP remains sustainable at its current benefit and contribution levels for at least the next 75 years.
It is with profound respect and gratitude that we acknowledge those who have worked to forge the CPP into what we know today.
The CPP’s 50th anniversary offers us a tremendous occasion to celebrate the Plan’s successes, and to extend our thanks to our provincial and territorial colleagues for their important contributions to the future of the CPP and to the retirement security of current and future generations, as well as to thank Canadians for supporting us in our efforts.
The Honourable William Francis Morneau
Minister of Finance
The Honourable Jean-Yves Duclos
Minister of Families, Children and Social Development
This infographic highlights the significant changes made to the Plan over its 50-year history.
2015 to 2016 at a glance
- The maximum pensionable earnings of the Canada Pension Plan (CPP) increased from $53,600 in 2015 to $54,900 in 2016. The contribution rate remained unchanged at 9.9%.
- CPP contributions totalled $46.1 billion this year.
- 5.5 million CPP beneficiaries were paid, representing a total annual benefit value of $40.8 billion.
- 4.7 million CPP retirement pensioners were paid $31.4 billion this year.
- 1.1 million surviving spouses or common-law partners and 65,000 children of deceased contributors were paid $4.6 billion this year.
- 332,000 people with disabilities and 82,000 of their children were paid $4.3 billion this year.
- 150,000 recipients of death benefits were paid $347 million this year.
- 954,000 post-retirement beneficiaries were paid $242 million this year.
- Operating expenses amounted to $1.4 billion, or 3.47% of the $40.8 billion in benefits.
- As at March 31, 2016, total CPP net assets were valued at $283.6 billion, of which $278.9 billion is managed by the CPP Investment Board.
Note: Figures above have been rounded. A beneficiary may receive more than one type of benefit.
Canada Pension Plan in brief
Most employees in Canada over the age of 18 contribute either to the 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 website.
The CPP is financed through investment income and through mandatory contributions from employees, employers and those who are self-employed.
Workers start contributing to the Plan at age 18, or from the Plan's beginning in 1966, whichever is later. The first $3,500 of annual earnings is exempted from contributions. Contributions are then made on earnings between $3,500 and $54,900, which is the earnings ceiling for 2016.
Employees contribute at a rate of 4.95%, and employers match that with equal contributions. Self-employed individuals contribute at the combined rate for employees and employers of 9.9% 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. It pays monthly benefits to eligible contributors with a disability and also to their dependent children.
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.
Contributions for 2016
Year's maximum pensionable earnings
Year's basic exemption
Year's maximum contributory earnings
Year's maximum employee/employer contribution (4.95%)
Year's maximum self-employed person's contribution (9.9%)
Beneficiaries and benefit 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 on benefits have also increased. Figure 1 shows the increase in beneficiaries and expenditures between 2014 to 2015 and 2015 to 2016; Figure 2 shows the percentage of expenditures by type of benefit.
Text description of Figure 1
|Year||Number of beneficiaries (in millions)||Benefit expenditures (in $ billions)|
Text description of Figure 2
|Retirement (including post-retirement benefit and net overpayments of 0.2%)||77.4|
|Dependent children of contributors with disabilities||7.4|
|Dependent children of deceased contributors||4.6|
To begin receiving a retirement pension, the applicant must have made at least one valid contribution to the Plan and must have reached the age of 60.
Retirement pensions represent 77% ($31.4 billion) of the total benefit amount paid out ($40.8 billion) by the CPP in 2015 to 2016. 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 2016, the maximum monthly retirement pension at age 65 was $1,092.50. The average monthly payment in 2015 to 2016 was $552.64.
Adjustments for early and late receipt of a retirement pension
Canadians are living longer and healthier lives, and the transition from work to retirement is increasingly diverse. The CPP offers flexibility for older workers who are making the transition to retirement.
CPP contributors can choose the right time to start receiving their retirement pension based on their individual circumstances and needs. Contributors have the flexibility to take their retirement pension earlier or later than the standard 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, make contributions to the CPP for a longer period of time but receive their benefits 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, make contributions to the CPP for a shorter period of time but receive their benefits for a longer period of time.
Retirement pension taken before age 65
For individuals who start receiving their retirement pension before age 65, the amount of their pension is permanently reduced by 0.6% per month. This means that a contributor who starts receiving a retirement pension at age 60 receives an annual retirement pension which is 36% less than if it were taken at age 65.
Retirement pension taken after age 65
For individuals who start receiving their retirement pension after age 65, the amount of their pension is permanently increased by 0.7% per month that they delay. This means that a contributor who delays receiving a retirement pension until age 70 receives an annual retirement pension which is 42% higher than if it were taken at age 65.
The post-retirement benefit allows CPP retirement pension beneficiaries who keep working to increase their retirement income by continuing to participate in the CPP, even if they are already receiving the maximum CPP retirement pension.
For Canadians between the ages of 60 and 64 who receive a CPP or QPP retirement pension and work outside of Quebec, the CPP contributions toward the post-retirement benefit are mandatory, while those between the ages of 65 and 70 who receive the retirement benefit while working can choose whether to continue contributing. 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.
For a working beneficiary, each year of contributions results in a post-retirement benefit, which is payable the following year. It is added to any previously earned post-retirement benefits. The amount of these benefits increases with the cost of living and is payable until the death of the contributor.
In 2015 to 2016, 954,000 CPP retirement pensioners received a total of $242 million in post-retirement benefits. The maximum monthly benefit amount at age 65 for 2016 was $27.31. The average monthly payment in 2015 to 2016 was $11.94.
The disability pension provides partial earnings replacement to CPP contributors who cannot work due to a severe and prolonged disability resulting from a physical or mental condition. Dependent children of disabled beneficiaries may also be eligible for children's benefits.
In 2015 to 2016, a total of $4.3 billion in benefits were paid to 332,000 disabled beneficiaries and to 82,000 children of disabled beneficiaries. These benefits represented approximately 11% of the total benefits paid out by the CPP in 2015 to 2016.
The disability pension includes a monthly flat rate, which was $471.43 in 2016. It also includes an earnings-related portion, which is 75% of the retirement pension that would have been earned had the contributor not become disabled. In 2016, the maximum disability benefit was $1,290.81 per month. The average monthly payment in 2015 to 2016 was $880.56.
The benefit paid to dependent children of disabled beneficiaries is a flat rate. In 2016, the amount was $237.69 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 2015 to 2016, there were 1.1 million survivors and 65,000 children of deceased contributors receiving benefits. In 2015 to 2016, survivor benefits represented 11% ($4.6 billion) of the total benefits paid out by the CPP.
The maximum survivor's pension for those under age 65 was $593.62 per month in 2016. This includes a flat-rate portion of $183.93 and an earnings-related portion, which is 37.5% of the deceased contributor's retirement pension. The maximum monthly amount at age 65 and over was $655.50, consisting of 60% of the deceased contributor's retirement pension. For 2015 to 2016, the average monthly payment for all survivor pensions was $330.45.
The benefit paid to dependent children of deceased contributors is a flat rate. In 2016, the amount was $237.69 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 2015 to 2016, death benefit payments represented nearly 1% of the total benefits paid out by the CPP. The average payment was $2,298 in 2015 to 2016.
The table below summarizes the maximum and average monthly amounts paid to beneficiaries by benefit type.
|Benefit type||Maximum monthly amount for 2016||Average monthly amount (in 2015 to 2016)|
|Death benefit (one-time payment)||$2,500.00||$2,298.00|
* at age 65
The CPP includes provisions that help to compensate for periods when individuals may have relatively low or no earnings. Dropping periods of low or no 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. As a result, this increases the benefit amount for most people. For benefits starting in 2014 and thereafter, up to 17% of lowest earnings, representing a maximum of eight years, can be dropped from the benefit calculation.
Child rearing provision
The child rearing provision excludes from the calculation of benefits the periods during which contributors remained at home, or 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. The provision may also assist those applying for survivor or disability benefits in meeting the contributory requirements for benefit eligibility.
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 to increase the benefit amounts of workers who continue to work and make CPP contributions after reaching age 65, but do not yet receive the CPP retirement pension. 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. This feature also allows one pension to be shared between them even if only one person has contributed to the Plan. 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 contributed to 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 in which province they work, CPP and QPP coverage is 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. As CPP beneficiaries age, the value of their CPP benefit is protected against inflation.
Many individuals have lived or worked in Canada and in other countries. Consequently, 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. Furthermore, 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 March 31, 2016, Canada has social security agreements in force with 57 countries. In addition, social security agreements with China and Peru have been signed and will enter into force once the legislative and policy approval process has been completed. Negotiations towards social security agreements are ongoing with many other countries. The names of countries with which Canada has concluded social security agreements are listed in the following table.
Canada has concluded social security agreements with the following countries:
|Country name||Date of agreement|
|Antigua and Barbuda||January 1, 1994|
|Australia||September 1, 1989|
|Austria||November 1, 1987|
|Barbados||January 1, 1986|
|Belgium||January 1, 1987|
|Brazil||August 1, 2014|
|Bulgaria||March 1, 2014|
|Chile||June 1, 1998|
|Croatia||May 1, 1999|
|Cyprus||May 1, 1991|
|Czech Republic||January 1, 2003|
|Denmark||January 1, 1986|
|Dominica||January 1, 1989|
|Estonia||November 1, 2006|
|Finland||February 1, 1988|
|France||March 1, 1981|
|Germany||April 1, 1988|
|Greece||May 1, 1983|
|Grenada||February 1, 1999|
|Hungary||October 1, 2003|
|Iceland||October 1, 1989|
|India||August 1, 2015|
|Ireland||January 1, 1992|
|Israel*||September 1, 2003|
|Italy||January 1, 1979|
|Jamaica||January 1, 1984|
|Japan||March 1, 2008|
|Jersey and Guernsey||January 1, 1994|
|Korea||May 1, 1999|
|Latvia||November 1, 2006|
|Lithuania||November 1, 2006|
|Luxembourg||April 1, 1990|
|Malta||March 1, 1992|
|Mexico||May 1, 1996|
|Morocco||March 1, 2010|
|Netherlands||October 1, 1990|
|New Zealand||May 1, 1997|
|Norway||January 1, 1987|
|Philippines||March 1, 1997|
|Poland||October 1, 2009|
|Portugal||May 1, 1981|
|Republic of Macedonia||November 1, 2011|
|Romania||November 1, 2011|
|Saint Lucia||January 1, 1988|
|Saint Vincent and the Grenadines||November 1, 1998|
|Serbia||December 1, 2014|
|Slovak Republic||January 1, 2003|
|Slovenia||January 1, 2001|
|St. Kitts and Nevis||January 1, 1994|
|Spain||January 1, 1988|
|Sweden||January 1, 1986|
|Switzerland||October 1, 1995|
|Trinidad and Tobago||July 1, 1999|
|Turkey||January 1, 2005|
|United Kingdom*||April 1, 1998|
|United States of America||August 1, 1984|
|Uruguay||January 1, 2002|
* The social security agreements with China, Israel and the United Kingdom provide an exemption from the obligation to contribute to the social security system of the other country for employers and their employees temporarily posted abroad. These agreements do not contain provisions concerning eligibility for pension benefits.
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 March 31, 2016, there were 1,720,993 existing employer accounts. In 2015 to 2016, the CRA conducted 56,258 examinations to promote compliance with the requirements to withhold, report and remit employer source deductions. Employers and employees account for approximately 95% of contributions, and the remaining 5% comes from the self-employed. In 2015 to 2016, contributions amounted to $46.1 billion.
Services to contributors and beneficiaries
Within Employment and Social Development Canada, 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 2015 to 2016, Service Canada continued its efforts to ensure that eligible Canadians are receiving public pension benefits to which they are entitled, 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.
Service Canada promotes the use of online services through:
- targeted mailing of inserts, including seasonal mailing such as at tax-filing season
- messaging added to correspondence to citizens
- improved navigation to online services through the Service Canada home page
- messaging promoted through the new Government of Canada webpages, and
- messaging provided by staff who speak to clients from in-person and call centre channels
Service Canada is advancing its e-service agenda through enhancements in the secure online My Service Canada Account with the objective of enhancing electronic service offerings. CPP clients can easily access their personal information securely online. My Service Canada Account provides a single point of access for users to apply for a CPP retirement pension. In June 2015, Service Canada implemented and launched a fully automated online CPP retirement application, eliminating the ink-based signature requirements for the CPP. At the end of 2015 to 2016, approximately 68,400 individuals, representing 25% of all applications, applied for their CPP retirement pension online.
CPP beneficiaries can make enquiries, conduct transactions and, if they live in Canada, update their mailing address, phone numbers and direct deposit information online. Further, CPP beneficiaries can also view and print copies of their tax slips for the current year and the previous six years. More information is available by visiting the Contact Canada Pension Plan page.
CPP contributors can view and print an official copy of their Statement of Contributions. Contributors can also use this online service to request that copies of their Statement of Contributions be issued by mail.
Currently underway is the development of a multi-year Service Improvement Strategy for the CPP. This strategy, among other activities, will help streamline business operations, enhance e-service delivery and increase processing automation.
In 2015 to 2016, Service Canada met all of the service standards relating to the processing of CPP benefits.
In 2015 to 2016, Service Canada processed approximately 276,000 applications for retirement benefits, and 95% of these benefits were paid within the first month of entitlement (see Table 1).
During the same period, Service Canada also processed approximately 66,000 initial applications for disability benefits. Decisions were made on 86% of these initial applications within 120 calendar days of receipt of the completed application.
Clients who are not satisfied with an initial decision on their CPP application may ask the Minister of Families, Children and Social Development to reconsider (or administratively review) the decision.
In 2015 to 2016, Service Canada issued approximately 14,100 reconsiderations of decisions related to CPP benefits, division of pension credits and pension sharing. Of these reconsidered decisions, 65% were upheld while 35% were reversed.
The majority of reconsideration requests pertain to disability pension applications. Of all the reconsideration requests, Service Canada issued approximately 12,200 reconsiderations of decisions related to disability benefits. Eighty-one% of all reconsideration decisions were made within 120 calendar days of receipt of the request.
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.
|Service standard||National objective||2015 to 2016 National result|
|CPP retirement applications
Pay benefits within the first month of entitlement
|CPP disability (initial decisions)
Make an initial decision within 120 calendar days of receipt of a complete application
|CPP disability (reconsideration decisions)
Make a reconsideration decision within 120 calendar days of receipt of a request for a reconsideration
In February 2016, the Auditor General tabled a report on the Canada Pension Plan Disability (CPPD) program, which made several recommendations to address concerns with the initial application process, the timeliness of decisions, the consistency and quality of decisions, and the timeliness of appeals decided by the Social Security Tribunal of Canada.
The Department’s Management Response to the Auditor General’s report agreed with all of the audit’s recommendations for action. In addition to addressing the specific commitments to improving the accessibility and responsiveness of the program to meet the needs of Canadians with severe and prolonged disabilities, a comprehensive renewal of CPPD has been underway since the summer of 2015.
The CPPD renewal is guided by the principles of service excellence, including quality, consistency, accuracy and efficiency. Short-term foundational improvements to the CPPD program will enable longer-term transformation projects intended to produce a well-functioning, high-quality, e-accessible program.
Clients who are not satisfied with the Minister's reconsidered decision may appeal to the Social Security Tribunal of Canada.
The Tribunal is an independent administrative body that makes quasi-judicial decisions on appeals related to the Canada Pension Plan, the Old Age Security Act and the Employment Insurance Act.
The Tribunal began its operations on April 1, 2013, and was created to simplify and streamline Income Security and Employment Insurance appeal processes by offering a single point of contact for all cases.
The Tribunal is divided into two separate divisions: a General Division and an Appeal Division. All decisions are made by individual members of the Tribunal. The General Division includes two sections:
- The Income Security Section makes decisions on appeals from decisions of Employment and Social Development Canada related to the Canada Pension Plan and Old Age Security Act; and
- The Employment Insurance Section makes decisions on appeals from decisions of the Canada Employment Insurance Commission related to the Employment Insurance Act
The Appeal Division reviews the decisions issued by both sections of the General Division.
General Division, Income Security section
In 2015 to 2016, the Income Security Section of the General Division received 3,851 new appeals related to CPP benefits. As of March 31, 2016Footnote 1, 6,646 CPP appeals have been concluded.
Appeal Division, Income Security cases
In 2015 to 2016, the Appeal Division received 599 new cases related to CPP benefits from the Income Security Section of the General Division. As of March 31, 2016Footnote 2, 707 appeals related to CPP benefits have been concluded.
Ensuring program integrity
To ensure the accuracy of benefit payments, the security and privacy of personal information and the overall quality of service, Employment and Social Development Canada (ESDC) continues to 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-based 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 preventing incorrect payments and identify systemic impediments to clients receiving their correct and full benefit entitlement.
As part of its effort to address overpayment situations, ESDC investigates suspected client error and fraud. By recovering overpayments and preventing future incorrect payments, these activities resulted in $10.5 million in accounts receivable as overpayments and prevented an estimated $8.8 million from being incorrectly paid in 2015 to 2016. A further estimated $64.6 million has been prevented from being incorrectly paid for future years after 2015 to 2016. The recovered overpayments are credited to the CPP, thereby helping to maintain the long-term sustainability of the Plan.
In 2011, ESDC adopted the Identity Management Policy, 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. After five years in effect, the Identity Management Policy was recently modernized to, in part, better reflect the realities and authorities of existing programs.
The Identity Management Policy 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 also helps 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.
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. This process is referred to as the CPP triennial review. 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 from 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.
The results of the last triennial review (2013 to 2015) by the federal and provincial Ministers of Finance were announced by the federal Minister of Finance in Part I of the Canada Gazette on January 30, 2016. The review confirmed that the current contribution rate of 9.9% is expected to be sufficient to financially sustain the CPP over the long term, based on the conclusions of the Twenty-sixth Actuarial Report on the Canada Pension Plan. Canadians can count on the CPP to be there for them when they retire.
Read the conclusions of the 2013 to 2015 triennial review in Part I of the Canada Gazette of January 30, 2016.
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 to ensure a high degree of portability of QPP and CPP benefits across Canada.
The Twenty-sixth Actuarial Report on the Canada Pension Plan presents the financial status of the CPP as of December 31, 2012, and takes into account the recent changes to modernize the Plan, as well as the actual demographic and economic trends since December 31, 2009. According to the Report, the CPP is expected to meet its obligations and remain financially sustainable over the long term under the current contribution rate of 9.9%.
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-sixth Actuarial Report on the Canada Pension Plan. The external panel's findings confirmed that the work performed by the Office of the Chief Actuary on the Report met all professional standards of practice and statutory requirements, and stated that the assumptions and methods used were 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 reporting process including data, methodology, assumptions and communication of results. 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-sixth Actuarial Report on the Canada Pension Plan and the conclusions reached by the Chief Actuary about the long-term financial sustainability of the Plan.
To view the CPP's actuarial reports, reviews and studies, visit the Office of the Superintendent of Financial Institutions website.
When it was introduced in 1966, 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, labour force participation and the low rates of return on investments.
However, demographic and economic developments, as well as changes to benefits and an increase in disability claims 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 1996, contribution rates, already legislated to rise to 10.1% by 2016, were expected to rise again—to 14.2% by 2030—to continue to finance the CPP on a pay-as-you-go basis. Financing the CPP on the same basis as in the past 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 1998 to gradually raise the level of CPP funding. Changes were implemented to: increase the contribution rates over the short term; reduce the growth of benefits over the long term; and invest cash flows not needed to pay benefits in the financial markets through the CPP Investment Board 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 1997 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-sixth 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 income from this pool of assets will help pay benefits as the large cohort of baby boomer retirees. 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% for 2016 and thereafter in the Twenty-sixth 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-sixth Actuarial Report on the Canada Pension Plan, the full-funding rate, in respect of amendments made to the Plan in 2008, was determined to be 0.01% for 2013 and thereafter. According to CPP regulations regarding the calculation of the Plan's contribution rates, if the full-funding rate is less than 0.02%, then it is deemed to be zero. As a result, the full-funding rate under the Twenty-sixth Actuarial Report on the Canada Pension Plan is deemed to be zero. The minimum contribution rate required to fund the CPP, which is the sum of the steady-state and full-funding rates, is thus equal to the steady-state rate of 9.84% for 2016 and thereafter.
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 (2008).
According to the financial projections of the Twenty-sixth 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 until 2023, and to be less than the amount of benefits thereafter. Funds not immediately required to pay benefits will be transferred to the CPP Investment Board 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 2023 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.
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 to increase the legislated rate or maintain 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 be suspended until the following triennial review. By law, any further enhancement of the CPP must be fully funded.
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 administrative expenditures). The CPP Account also records the amounts transferred to, or received from, the CPP Investment Board (CPPIB). Spending authority, as per section 108(4) of the CPP legislation, is limited to the CPP 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, which came into force on April 1, 2004, 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 1997, the CPPIB is a professional investment management organization with a critical purpose—to help provide a foundation on which Canadians build financial security in retirement. The CPPIB invests the assets of the CPP not currently needed to pay pension, disability and survivor benefits.
The CPPIB is accountable to Parliament and to the federal and provincial Ministers of Finance. However, the CPPIB is governed independently from the CPP, operating at arm's length from governments. Its headquarters are located in Toronto, with offices in Hong Kong, London, Luxembourg, Mumbai, New York and São Paulo.
The CPPIB's legislated mandate is to maximize investment returns without undue risk of loss, taking into account the factors that may affect the funding of the CPP and its ability to meet its financial obligations.
For more information on the CPPIB mandate, governance structure and investment policy, visit the Canada Pension Plan Investment Board website.
CPP assets and cash management
Pursuant to section 108.1 of the Canada Pension Plan and an administrative agreement between the CPP and the CPPIB, amounts not required to meet specified obligations of the CPP are transferred weekly to the CPPIB in order to gain a better return. The cash flow forecasts of the CPP determine the amount to be transferred to or from the CPPIB, and these forecasts are updated regularly.
ESDC 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, ESDC obtains confirmation at all critical transfer points and can therefore monitor the cash flow from one point to the next.
CPP net assets
As at March 31, 2016, the CPP net assets totalled $283.6 billion. The Government of Canada held $4.7 billion to meet CPP financial needs. The remaining $278.9 billion is managed by the CPPIB.
For the 10-year period ending March 31, 2016, the Fund held by the CPPIB had an annualized net nominal rate of return of 6.8%. Over that 10-year period, the CPPIB has contributed $125.6 billion in net cumulative investment income to the fund, after all CPPIB costs.
Investing for our future
In terms of net assets, the CPP Fund ranks among the world's 10 largest retirement funds. In managing the fund, the CPPIB pursues a diverse set of investment programs that contribute to the long-term sustainability of the CPP.
In 2006, the CPPIB made the strategic decision to move away from index-based investments towards a more active investment approach in order to seek higher returns.
The CPPIB invests in public equities, private equities, bonds, private debt, real estate, infrastructure, agriculture and other investment areas. The CPPIB's investments have become increasingly international, as it diversifies risk and seeks growth opportunities in global markets. In doing so, the CPPIB applies its comparative advantages—scale, certainty of assets and a long investment horizon—to pursue the best investment opportunities in the world.
The CPPIB draws on internal expertise and partnerships with external investment managers to build its global portfolio.
The CPPIB reports on a quarterly basis. Legislation requires the CPPIB to hold public meetings at least every two years in each province, 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.
CPP expenses consist of pensions and benefits paid, operating expenses and benefit overpayments as detailed in the CPP Consolidated Statement of Operations for the year ended March 31, 2016.
CPP operating expenses of $1.414 billion in 2015 to 2016 represent 3.47% of the $40.8 billion in benefits paid. Table 2 presents the CPP's operating expenses for the last two years.
|Department/Agency/Crown Corporation||In millions of dollars|
|2015 to 2016||2014 to 2015|
|CPP Investment Board*||876||803|
|Employment and Social Development Canada||321||326|
|Canada Revenue Agency||175||173|
|Treasury Board Secretariat||17||17|
|Public Services and Procurement Canada||6||9|
|Administrative Tribunals Support Service of Canada||17||7|
|Office of the Superintendent of Financial Institutions (where the Office of the Chief Actuary is housed) / Finance Canada||2||2|
* The operating expenses for the CPPIB do not include the transaction costs and investment management fees since these are presented as part of net investment income (loss). For more details, refer to “Canada Pension Plan Consolidated Statement of Operations” and to the CPPIB’s Annual Report.
Overpayment of benefits
Consistent with its mandate to manage the CPP effectively, ESDC has procedures in place to detect benefit overpayments. During 2015 to 2016, overpayments totalling $102 million were detected, $74 million in overpayments were recovered and debts of $5 million were forgiven. The above figures represent a net increase of $23 million in the accounts receivable for the year.
Looking to the future
Since it began in 1966, the CPP has continually adapted to social and economic changes in order to respond to the evolving needs of Canadians. Helping Canadians achieve their goal of a safe, secure and dignified retirement is a key part of the Government of Canada’s plan to help the middle class and those working hard to join it. In this regard, on June 20, 2016, federal and provincial Ministers of Finance reached a historic agreement to enhance the CPP. Once fully in place, the CPP enhancement will increase the maximum CPP retirement benefit by about 50%. On October 6, 2016, the Government of Canada introduced legislation to implement the agreement, which will provide Canadians with a stronger public pension and help them retire in dignity. This legislation received Royal Assent on December 15, 2016. To read more about the enhancement to the CPP, visit the Department of Finance Canada.
Given the increasing CPP workload volumes and changing service expectations of Canadians, Service Canada is implementing a CPP Service Improvement Strategy focused on improving client service and achieving efficiencies, while introducing new online options for clients to self-serve.
The Twenty-seventh Actuarial Report on the Canada Pension Plan, which was released on September 27, 2016, confirmed that the CPP is sustainable at the legislated contribution rate for at least the next 75 years. The Report also marks the beginning of the 2016–2018 triennial review of the CPP. The triennial reviews provide a window of opportunity to evaluate the financial state of the CPP and ensure the Plan continues to respond to changing demographic, societal or labour market needs.
Canada Pension Plan consolidated financial statements
Please visit the Public Services and Procurement Canada website to view the Canada Pension Plan Consolidated Financial Statements for the year ended March 31, 2016.
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