Annual report of the Canada Pension Plan for fiscal year 2016 to 2017
From: Employment and Social Development Canada
On this page
- Fiscal year 2016 to 2017 at a glance
- Canada Pension Plan in brief
- Beneficiaries and benefit expenditures
- Canada Pension Plan enhancement
- International social security 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
Annual report of the Canada Pension Plan for fiscal year 2016 to 2017 [PDF - 1.15 MB]
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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 2016 to 2017.
The Honourable William Francis Morneau
Minister of Finance
The Honourable Jean-Yves Duclos
Minister of Families, Children and Social Development
Fiscal year 2016 to 2017 at a glance
- The maximum pensionable earnings of the Canada Pension Plan (CPP) increased from $54,900 in 2016 to $55,300 in 2017. The contribution rate remained unchanged at 9.9%.
- CPP contributions totalled $47 billion this year.
- 5.6 million CPP beneficiaries were paid, representing a total annual benefit value of $42.5 billion.
- 4.9 million CPP retirement pensioners were paid $32.9 billion this year.
- 1.1 million surviving spouses or common-law partners and 64,000 children of deceased contributors were paid $4.6 billion this year.
- 335,000 people with disabilities and 83,000 of their children were paid $4.3 billion this year.
- 144,000 death benefits totalling $334 million were paid this year.
- 1.1 million post-retirement beneficiaries were paid $341 million this year.
- Operating expenses amounted to $1.5 billion, or 3.55% of the $42.5 billion in benefits.
- As at March 31, 2017, total CPP net assets were valued at $320.9 billion, of which $316.7 billion is managed by the CPP Investment Board.
Figures above have been rounded. A beneficiary may receive more than one type of benefit.
Canada Pension Plan in brief
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 Government of Canada and Canada's provincial governments. Quebec manages and administers its own comparable plan, the QPP, and participates in decision-making for the CPP. Benefits under either plan are based on pension credits accumulated under both plans.
For more information on the QPP, visit the Retraite Québec website.
In 2016, the Government of Canada, provinces and territories agreed to strengthen the retirement income system by enhancing the CPP to increase the amount working Canadians will receive from the plan in their retirement years. The CPP will begin to be enhanced in January 2019. More details are available in the section Canada Pension Plan Enhancement.
The CPP is financed through mandatory contributions from employees, employers and those who are self-employed, and through the revenue earned on CPP investments.
Workers start contributing to the Plan at age 18Footnote 1. As shown in Table 1, the first $3,500 of annual earnings is exempted from contributions. Contributions are then made on earnings between $3,500 and $55,300, which is the earnings ceiling for 2017.
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.
|Year's maximum pensionable earnings||$55,300.00|
|Year's basic exemption||$3,500.00|
|Year's maximum contributory earnings||$51,800.00|
|Year's maximum employee/employer contribution (4.95%)||$2,564.10|
|Year's maximum self-employed person's contribution (9.9%)||$5,128.20|
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 fiscal year 2015 to 2016 and fiscal year 2016 to 2017; Figure 2 shows the percentage of expenditures by type of benefit.
Text description of Figure 1: CPP – Beneficiaries and benefit expenditures by fiscal year
|Fiscal year||Number of beneficiaries (in millions)||Benefit expenditures (in $ billions)|
|2015 to 2016||5.5||40.8|
|2016 to 2017||5.6||42.5|
Text description of Figure 2: CPP – Percentage of expenditures by benefit type in fiscal year 2016 to 2017
|Benefit type||Percentage of expenditures|
|Retirement (including post-retirement benefit and net overpayments of 0.3%)||78.1|
|Benefit type||Percentage of expenditures|
|Dependent children of contributors with disabilities||7.1|
|Benefit type||Percentage of expenditures|
|Dependent children of deceased contributors||4.5|
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 (and post-retirement benefits) represent 78.1% ($33.3 billion) of the total benefit amount paid out ($42.5 billion) by the CPP in fiscal year 2016 to 2017. 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 2017, the maximum monthly retirement pension at age 65 was $1,114.17. The average monthly payment in fiscal year 2016 to 2017 was $560.54.
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.
Table 2 shows the maximum monthly retirement payments in 2017 for pensions taken between the ages of 60 and 70 based on actual adjustment factors.
|Maximum monthly retirement pension before age 65 (0.6% adjustment reduction per month)||Maximum monthly retirement pension||Maximum monthly retirement pension after age 65 (0.7% adjustment increase per month)|
Note: Numbers above have been rounded and calculated at the date the beneficiary turns the age referred to in the table (for example at age 60 and 0 months).
The post-retirement benefit allows CPP retirement pension beneficiaries who keep working to increase their retirement income by continuing to contribute to 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 pension 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 fiscal year 2016 to 2017, 1.1 million CPP retirement pensioners received a total of $341 million in post-retirement benefits. The maximum monthly benefit amount at age 65 for 2017 was $27.85. The average monthly payment for fiscal year 2016 to 2017 was $12.56.
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 fiscal year 2016 to 2017, a total of $4.3 billion in benefits were paid to 335,000 disabled beneficiaries and to 83,000 children of disabled beneficiaries. These benefits represented approximately 10.2% of the total benefits paid out by the CPP in fiscal year 2016 to 2017.
The disability pension includes a monthly flat rate, which was $478.03 in 2017. 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 2017, the maximum disability benefit was $1,313.66 per month. The average monthly payment for fiscal year 2016 to 2017 was $892.49.
The benefit paid to dependent children of disabled beneficiaries is a flat rate. In 2017, the amount was $241.02 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 provides 3 survivor benefits: the monthly survivor’s pension, the flat-rate child’s benefit and the one-time, lump-sum death benefit. In fiscal year 2016 to 2017, survivor benefits represented 11.7% ($4.6 billion) of the total benefits paid out by the CPP.
Survivor pensions are paid to the surviving spouse or common-law partner of the contributor. 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. Dependent children of deceased contributors may also be eligible for children’s benefits. In fiscal year 2016 to 2017, there were 1.1 million survivors and 64,000 children of deceased contributors receiving benefits.
The maximum survivor's pension for those under age 65 was $604.32 per month in 2017. This includes a flat-rate portion of $186.51 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 $668.50, consisting of 60% of the deceased contributor's retirement pension. For the 2016 to 2017 fiscal year, the average monthly payment for all survivor pensions was $331.81.
There are special rules used to combine the CPP survivor’s pension with either the retirement or disability pension resulting in a single combined benefit. The benefit paid to dependent children of deceased contributors is a flat rate. In 2017, the amount was $241.02 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 6 times the amount of the deceased contributor's monthly retirement pension, up to a maximum of $2,500. For fiscal year 2016 to 2017, the average death benefit payment was $2,298.52.
Table 3 below summarizes the maximum and average monthly amounts paid to beneficiaries by benefit type.
|Benefit type||Maximum monthly amount for 2017||Average monthly amount (in the 2016 to 2017 fiscal year)|
|Death benefit (one-time payment)||$2,500.00||$2,298.52|
* 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. Up to 17% of a person’s contributory period with the lowest earnings, representing a maximum of 8 years, can be dropped from the benefit calculation. This increases the benefit amount for most people.
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 7. Every month until the child reaches seven years of age can be excluded from the benefit calculation for a contributor who is eligible for this provision. In addition to increasing the amount of benefits, this provision may also assist those applying for survivor or disability benefits in meeting the contributory requirements for eligibility.
Periods during which individuals are disabled in accordance with the CPP 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. It may also reduce the amount of benefits for one of the former partners.
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.
Canada Pension Plan enhancement
The Government of Canada has worked with the provinces and territories to strengthen the retirement income system by enhancing the CPP. Following the signing of a historic agreement in principle by Canada’s Ministers of Finance on June 20, 2016, the legislation to implement the enhancement came into force on March 3, 2017, after provincial and federal approvals.
Starting in 2019, the CPP will be gradually enhanced to provide contributors with higher benefits in exchange for making higher contributions. As illustrated in Figure 3, the fully enhanced CPP retirement pension will replace one-third of a contributor’s eligible average earnings, up from one-quarter today. The upper limit of eligible earnings covered by the CPP ($55,300 in 2017), known as the year’s maximum pensionable earnings (YMPE), will also increase by 14%. Together, these changes once fully implemented will increase the maximum retirement pension by about 50%.
The enhancement will also increase post-retirement benefits as well as disability and survivor’s pensions based on an individual’s contributions.
Each year of contributions to the enhanced CPP will allow workers to accrue partial additional benefits. Fully enhanced benefits will generally become available after about 40 years of making contributions.
The enhancement will not affect eligibility for CPP benefits or the amount of benefits that individuals are already receiving. Individuals who do not work and do not contribute to the CPP in 2019 or later will not be affected by the enhancement.
Contributions under the CPP Enhancement
The enhancement’s implementation will be phased-in over 7 years starting in 2019. The changes to contributions are illustrated in Figure 4 and include the following key elements:
- The CPP contribution rate that is applied to the existing eligible earnings range (from $3,500 to the upper limit which is set at $55,300 in 2017) will increase by 2% points. From 2019 to 2023, the contribution rate will gradually increase from 9.9% to 11.9% (shared equally by employers and employees, while self-employed individuals contribute at the full rate).
- The ceiling on eligible earnings covered by the CPP ($55,300 in 2017), or the YMPE, will increase by 14%. The contribution rate between the YMPE and the new ceiling will be 8% (shared equally by employers and employees, with self-employed individuals contributing at the full rate) after a 2-year phase-in to be completed in 2025.
More information on the CPP enhancement is available by visiting the Canada Pension Plan enhancement page.
International social security agreements
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. Further, social security agreements enable Canadian companies and their employees who are sent to work temporarily outside of Canada to continue to contribute to the CPP and eliminate the need to contribute to the social security program of the other country for the same work.
As of March 31, 2017, Canada has concluded social security agreements with 59 countries (see Table 4). Negotiations towards social security agreements are ongoing with many other countries.
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|
|China*||January 1, 2017|
|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|
|Peru||March 1, 2017|
|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, 2017, the CRA reported that there are 1,767,485 employer accounts. In fiscal year 2016 to 2017, the CRA conducted 56,157 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. For fiscal year 2016 to 2017, contributions amounted to $47 billion.
Services to contributors and beneficiaries
Within Employment and Social Development Canada (ESDC), 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 fiscal year 2016 to 2017, 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 on the Internet, by phone, in person at Service Canada Centres and through scheduled and community outreach.
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 Government of Canada webpages; and
- messaging provided by staff who speak to clients from in-person and call centre channels.
Service Canada continues to advance its e-service agenda through enhancements in the secure online My Service Canada Account. 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 fiscal year 2016 to 2017, approximately 82,000 individuals, representing 28% 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 6 years. Visit Canada Pension Plan for more information about services available for CPP beneficiaries.
CPP contributors can view and print an official copy of their Statement of Contributions.
Service Canada is implementing a comprehensive CPP Service Improvement Strategy. Between today and the completion of the Strategy in 2019, Canadians will increasingly have more user-friendly electronic services and benefit from faster resolution of issues and strengthened service standards.
As mentioned in last year’s annual report, in February 2016, the Auditor General tabled a report on Canada Pension Plan Disability (CPPD), 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.
In fiscal year 2016 to 2017, Service Canada continued to advance the Department’s Management Response to the Auditor General’s report which agreed with all of the audit’s recommendations for action. Service Canada continued with a comprehensive renewal of CPPD, which has been underway since 2015, and addressed the specific commitments to improving the accessibility and responsiveness of the program to meet the needs of Canadians with severe and prolonged disabilities. This included undertaking a comprehensive review of CPPD service standards.
In October 2016, 2 new service standards for applicants with terminal illness or grave medical conditions were created and revisions were made to 2 existing service standards. These new service standards recognize the urgency in processing applications and providing decisions faster to those who need them most. The standards were developed as part of a comprehensive review which included consultation with clients, employees and other CPPD stakeholders.
The revised CPPD service standards and operational targets are:
- CPPD initial decisions are made within 120 calendar days following receipt of a complete application 80% of the time (up from 75%);
- New: CPPD decisions regarding terminally ill applicants are made within 5 business days following receipt of a complete application 95% of the time;
- New: CPPD decisions regarding applicants with grave medical conditions are made within 30 calendar days following receipt of a complete application 80% of the time; and
- CPPD reconsideration decisions are made within 120 calendar days following receipt of a reconsideration request 80% of the time (up from 70%).
The Department will report on CPPD service standards performance annually on the Service Canada website, in the Departmental Results Report and in the Canada Pension Plan Annual Report.
The Department has also committed to ensuring that the new service standards, internal measures and their associated operational performance targets are reviewed annually for a period of 3 years and every 2 years thereafter.
This ongoing commitment to review the Department’s service standards on a regular basis will ensure that they remain appropriate, they support the effective delivery of CPPD and they enable Canadians to know what to expect when applying for CPPD benefits.
In fiscal year 2016 to 2017, Service Canada exceeded the CPP service standards relating to the processing of retirement and initial disability application pensions. Newly introduced service standards for applications from those with a terminal illness and grave medical conditions were near target (see Table 5).
In total, Service Canada processed approximately 7.4 million CPP applications and revised benefits. This included:
- approximately 293,000 applications for retirement pensions (97% of these benefits were paid within the first month of entitlement);
- approximately 67,000 initial applications for disability pensions (decisions were made on 84% of these initial applications within 120 calendar days of receipt of a complete application); and
- an additional 925,000 post-retirement benefits.
Since the implementation of the new CPPD service standards, Service Canada processed approximately 1,500 applications for clients with a terminal illness. Decisions were made on 90% of these requests within 5 business days of receiving a complete application (against a target of 95%).
During the same period, Service Canada also processed approximately 600 applications for clients with grave medical conditions. Decisions were made on 79% of these requests within 30 calendar days of receiving a complete application (against a target of 80%).
The Department continues to review administrative processes to ensure that the service standards are met going forward.
|Service standard||National objective||National result for fiscal year 2016 to 2017|
|CPP retirement pension applications: Pay benefits within the first month of entitlement||90%||97%|
|CPP disability pension applications: Initial disability decisions are made within 120 calendar days of receiving a complete application||80% (was 75% until October 2016)||84%|
|CPP disability pension for applicants with a terminal illness: A decision for applicants with a terminal illness is made within 5 business days of receiving a complete terminal illness application||95% (established October 2016)||90%|
|CPP disability pension for applicants with a grave medical condition: A decision for applicants with a grave condition is made within 30 calendar days of receiving a complete application||80% (established October 2016)||79%|
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 fiscal year 2016 to 2017, Service Canada issued approximately 13,000 reconsiderations of decisions related to CPP benefits, division of pension credits and pension sharing. Of these reconsidered decisions, 57% were upheld while 43% were reversed.
The majority of reconsideration of decision requests pertain to disability pension applications. Service Canada issued approximately 12,000 reconsiderations related to disability pensions. 84% of all reconsideration decisions were made within 120 calendar days of receipt of the request (see Table 6). The Department’s target to meet this service standard was increased from 70% to 80% in December 2016.
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||National result for fiscal year 2016 to 2017|
|CPP disability pension reconsiderations: A decision on a reconsideration request is made within 120 calendar days of receiving the reconsideration request||80% (was 70% until October 2016)||84%|
Clients who are not satisfied with the Minister's reconsideration decisions pertaining to CPP benefits may appeal to the Social Security Tribunal of Canada (SST).
The SST is an independent administrative tribunal that makes quasi-judicial decisions on appeals related to the Canada Pension Plan, the Old Age Security Act and the Employment Insurance Act.
The SST is divided into 2 separate divisions: the General Division and the Appeal Division. The General Division is composed of 2 different sections: Income Security and Employment Insurance. The General Division Income Security Section is responsible for hearing new appeals, and the Appeal Division hears appeals from both sections of the General Division.
In fiscal year 2016 to 2017, the General Division Income Security Section received 3,308 new appeals related to CPP benefits. As of March 31, 2017, the General Division Income Security Section concluded 4,844 appeals related to CPP benefitsFootnote 2.
In fiscal year 2016 to 2017, the Appeal Division received 575 appeals of decisions from the General Division Income Security Section related to CPP benefits. As of March 31, 2017, the Appeal Division concluded 388 appeals related to CPP benefitsFootnote 3.
Ensuring program integrity
To ensure the accuracy of benefit payments, the security and privacy of personal information and the overall quality of service, 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 while ensuring responsible stewardship of program funds and protecting personal information—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 $13.5 million in accounts receivable as overpayments and prevented an estimated $9 million from being incorrectly paid in fiscal year 2016 to 2017. A further estimated $60.1 million has been prevented from being incorrectly paid for future years after the 2016 to 2017 fiscal year. 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 5 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). It 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, Canada’s Ministers of Finance review the CPP’s financial state every 3 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. The Ministers of Finance 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 3 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.
Changes to the CPP legislation governing the level of benefits or the rate of contributions and changes to the Canada Pension Plan Investment Board Act 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 provinces have provided formal consent to the changes by way of Orders in Council. 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 most recent triennial actuarial report on the CPP, the Twenty-seventh Actuarial Report on the Canada Pension Plan, prepared by the Office of the Chief Actuary (OCA), was tabled by the Minister of Finance in Parliament on September 27, 2016. The Report confirms that the current contribution rate of 9.9% is expected to remain sufficient, along with projected investment income, to financially sustain the Plan over the long term.
In addition, the Twenty-eighth Actuarial Report supplementing the Actuarial Report on the Canada Pension Plan as at 31 December 2015 was tabled in Parliament on October 28, 2016. This report was prepared by the Chief Actuary to show the effect of the new CPP enhancement introduced under Bill C-26 – An Act to amend the Canada Pension Plan, the Canada Pension Plan Investment Board Act and the Income Tax Act, which received Royal Assent on December 15, 2016, and came into force on March 3, 2017. The supplemental report confirms that the legislated first additional contribution rate of 2.0% and second additional contribution rate of 8.0% are sufficient, along with projected investment income, to fully pay the projected expenditures of the enhanced component of the CPP over the long term.
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 and labour force participation as well as 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 3 decades, resulted in significantly higher costs. Starting in the mid-1980s, the finances of the CPP came under increasing pressure as assets declined and increases in contribution rates became necessary. In 1993, it was projected that the pay-as-you-go rate would be 14.2% by 2030 and that the reserve fund would be depleted by 2015.
Continuing to finance the CPP on a pay-as-you-go basis 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 1997 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 new 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 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-seventh 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 6 years of expenditures until 2030, then gradually grow to about 7 years. Investment income 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 introduction of incremental full funding: this means that changes to the CPP that increase or add new benefits are fully funded. In other words, benefit costs are paid as benefits are 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. The sum of the steady-state and full funding rates is the minimum contribution rate required to fund the CPP. The minimum contribution rate was determined to be 9.79% for 2019 and thereafter in the Twenty-seventh Actuarial Report on the Canada Pension Plan.
If, at any time, the minimum contribution rate is higher than the legislated contribution rate, and if the Ministers of Finance do not recommend either to increase the legislated rate or alter benefits, then automatic provisions would be triggered to sustain the CPP. An increase in the legislated rate would be phased in over 3 years, and benefit indexation would be suspended until the following triennial review.
The dual funding objectives for the CPP of steady-state and full funding 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).
The enhanced CPP is designed so that the new legislated additional contributions along with projected investment income will be sufficient to fully pay the projected benefits. The Chief Actuary determines the additional minimum contribution rates required to meet this objective. Provisions concerning what happens if rates are insufficient under the CPP enhancement are under development. These new regulations would apply in the event the additional minimum contribution rates deviate to a certain extent from their respective legislated contribution rates and no action is taken by the Ministers of Finance to address the deviation.
Actuarial reporting on the financial state of the CPP
The Twenty-seventh Actuarial Report on the Canada Pension Plan presents the financial state of the CPP as of December 31, 2015, and takes into account the actual demographic and economic trends since December 31, 2012.
According to the financial projections of this triennial actuarial report, the annual amount of contributions paid by Canadians into the CPP is expected to exceed the annual amount of benefits paid out until 2020 inclusive, 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 the following decades and, over time, will help pay for benefits as more and more baby boomers begin to collect their retirement pensions. In 2021 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.
A panel of 3 independent Canadian actuaries, selected by the United Kingdom Government Actuary's Department (GAD) through an arm's length process, reviewed the Twenty-seventh Actuarial Report on the Canada Pension Plan. The external panel's findings confirmed that the work performed by the OCA on the Report met all statutory requirements. The OCA also met all professional standards of practice, except that the study on the determination of the actuarial adjustment factors, mentioned in the Report, should have been published at the same time as the Report. The study on the actuarial adjustment factors has since been published. The external panel also stated that the assumptions and methods used for the Report were reasonable.
In addition to these main conclusions, the panel made a number of recommendations regarding the preparation and review of future actuarial reports. The GAD affirmed that the reviewers carried out a sufficiently thorough review and that the work was adequate and reasonable. As a result, Canadians can have confidence in the results of the Twenty-seventh 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 Chief Actuary.
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.
Two separate accounts, the CPP Account and the Additional CPP Account, have been established in the accounts of the Government of Canada to record the financial elements of the existing CPP and the Enhanced CPP respectively (such as contributions, interest, earned pensions and other benefits paid, as well as administrative expenditures). The CPP accounts also record the amounts transferred to, or received from, the CPPIB. Spending authority, as per sections 108(4) and 108.2(4) of the CPP legislation, is limited to the CPP net assets, which includes both accounts. It is important to note, however, that funds cannot be transferred between accounts, such that the base CPP will be wholly funded from the CPP Account, while the enhancement will be funded from the Additional CPP Account. 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 accounts’ operating balances are 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 Canada’s Ministers of Finance. However, the CPPIB is governed independently from the CPP and operates at arm’s length from governments. The CPPIB's legislated mandate is to maximize investment returns without undue risk of loss. In doing so, it is required to act in the best interest of contributors and beneficiaries, and take into account the factors that may affect the funding of the CPP and its ability to meet its financial obligations.
The CPPIB is headquartered in Toronto with offices in Hong Kong, London, Luxembourg, Mumbai, New York, São Paulo and Sydney.
For more information on CPPIB’s mandate, governance structure and investment policy, visit Canada Pension Plan Investment Board.
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, 2017, the CPP net assets totalled $320.9 billion. The Government of Canada held $4.2 billion to meet CPP financial needs. The remaining $316.7 billion is managed by the CPPIB. In terms of net assets, the CPP Fund ranks as one of the world's largest retirement funds.
For the 10-year period ending March 31, 2017, the Fund held by the CPPIB had an annualized net nominal rate of return of 6.7%. Over that 10-year period, the CPPIB has contributed $146.1 billion in cumulative net income to the Fund, after all CPPIB costs.
Investing for our future
In 2006, the CPPIB made the strategic decision to move progressively away from largely index-based investments towards the more active selection of investments in order to capitalize on its comparative advantages. The CPPIB benefits from the CPP Fund’s exceptionally long investment horizon, certainty of assets and scale. It has also developed a world-class investment team, which is complemented with top-tier external partners that support its internal capabilities. The CPPIB takes a disciplined, prudent long-term approach to managing the total portfolio.
In managing the Fund, the CPPIB pursues a diverse set of investment programs that stabilize performance and contribute to the long-term sustainability of the CPP.
The CPPIB ensures that the Fund has both asset and geographic diversification to make the Fund more resilient to single-market volatility. In order to build a diversified portfolio of CPP assets, the CPPIB invests in public equities, private equities, real estate, infrastructure and fixed income instruments. The CPPIB's investments have become increasingly international, benefitting from positive global growth in the world’s largest investment markets, and having greater resiliency during periods of slow growth within specific regions.
The CPPIB reports its financial performance on a quarterly and annual basis. Legislation requires the CPPIB to hold public meetings at least every 2 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, 2017.
CPP operating expenses of $1.507 billion in fiscal year 2016 to 2017 represent 3.55% of the $42.5 billion in benefits paid. Table 7 presents the CPP's operating expenses for the last 2 years.
|Department/Agency/Crown Corporation||Fiscal year 2016 to 2017
(in millions of dollars)
|Fiscal year 2015 to 2016
(in millions of dollars)
|CPP Investment Board*||923||876|
|Employment and Social Development Canada||332||321|
|Canada Revenue Agency||203||175|
|Treasury Board Secretariat||27||17|
|Public Services and Procurement Canada||6||6|
|Administrative Tribunals Support Service of Canada||13||17|
|Office of the Superintendent of Financial Institutions (where the Office of the Chief Actuary is housed) / Finance Canada||3||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 fiscal year 2016 to 2017, overpayments totalling $122 million were detected, $92 million in overpayments were recovered and debts of $4 million were forgiven. The above figures represent a net increase of $26 million in the accounts receivable for the year.
Looking to the future
In December 2017, as part of the 2016 to 2018 Triennial Review of the CPP, Canada’s Ministers of Finance agreed in principle to move forward with 5 changes to CPP benefits, as well as regulations to ensure the sustainability of the CPP enhancement. The Ministers committed to make best efforts to bring these changes into force by January 1, 2019.
The changes affecting benefits will provide further support for parents and persons with disabilities in the CPP enhancement, eliminate the reductions in survivor’s pension for survivors under age 45 and provide disability protection for retirement pension recipients under age 65. The death benefit will also be converted into a flat-rate benefit of $2,500, a change that will be particularly beneficial for families of lower-income workers. These changes would not require increases to legislated contribution rates. More information on these changes is available by visiting the Department of Finance Canada.
Canada Pension Plan Consolidated Financial Statements
View the Canada Pension Plan Consolidated Financial Statements for the year ended March 31, 2017.
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