Annual report of the Canada Pension Plan for fiscal year 2017 to 2018

From: Employment and Social Development Canada

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Her Excellency

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 2017 to 2018.

Respectfully,

The Honourable William Francis Morneau
Minister of Finance

The Honourable Jean-Yves Duclos
Minister of Families, Children and Social Development

Fiscal year 2017 to 2018 at a glance

  • The maximum pensionable earnings of the Canada Pension Plan (CPP) increased from $55,300 in 2017 to $55,900 in 2018. The contribution rate remained unchanged at 9.9%.
  • CPP contributions totalled $48.4 billion this year.
  • 5.8 million CPP beneficiaries were paid this year, representing a total annual benefit value of $44.5 billion of which:
    • 5.1 million CPP retirement pensioners were paid $34.6 billion
    • 1.1 million surviving spouses or common-law partners and 63,000 children of deceased contributors were paid $4.7 billion
    • 338,000 people with disabilities and 83,000 of their children were paid $4.4 billion
    • 160,000 death benefits totalling $368 million were paid
    • 1.2 million post-retirement beneficiaries were paid $440 million
  • Operating expenses amounted to $1.7 billion, or 3.75% of the $44.5 billion in benefits
  • As at March 31, 2018, total CPP net assets were valued at $361 billion, of which $356.1 billion is managed by the CPP Investment Board

Note:

Figures above have been rounded. A beneficiary may receive more than 1 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.

Contributions

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 18.Footnote 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 $55,900, which is the earnings ceiling for 2018.

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. Starting in 2019, workers and their employers will also start making contributions to the CPP enhancement. (More details are available in the section Changes to the Canada Pension Plan Starting in 2019, later in this report.)

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.

Table 1: CPP contributions for 2018

CPP contributions Amount
Year’s maximum pensionable earnings $55,900.00
Year’s basic exemption $3,500.00
Year’s maximum contributory earnings $52,400.00
Year’s maximum employee / employer contribution (4.95%) $2,593.80
Year’s maximum self-employed person’s contribution (9.9%) $5,187.60

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 2016 to 2017 and fiscal year 2017 to 2018; Figure 2 shows the percentage of expenditures by type of benefit.

Figure 1: CPP – Beneficiaries and benefit expenditures by fiscal year

CPP – Beneficiaries and benefit expenditures by fiscal year

Text description of Figure 1: CPP: Beneficiaries and benefit expenditures by fiscal year

Text description of drawing 1:

Number of beneficiaries (in millions)

Fiscal year Number of beneficiaries (in millions)
2016 to 2017 5.6
2017 to 2018 5.8

Text description of drawing 2:

Benefit expenditures (in $ billions)

Fiscal year Benefit expenditures (in $ billions)
2016 to 2017 42.5
2017 to 2018 44.5

Figure 2: CPP – Percentage of expenditures by benefit type in fiscal year 2017 to 2018

CPP – Percentage of expenditures by benefit type in 2017 to 2018

Text description of Figure 2: CPP: Percentage of expenditures by benefit type in fiscal year 2017 to 2018

Drawing 1

Benefit type Percentage of expenditures
Retirement (including post-retirement benefit and net overpayments of 0.1%) 78.6
Disability 10.0
Survivor 10.6
Death 0.8

Drawing 2

Benefit type Percentage of expenditures
Disability 93.0
Dependent children of contributors with disabilities 7.0

Drawing 3

Benefit type Percentage of expenditures
Survivor 95.6
Dependent children of deceased contributors 4.4

Retirement pensions

To begin receiving a retirement pension, the applicant must have made at least 1 valid contribution to the Plan and must have reached the age of 60.

In fiscal year 2017 to 2018, retirement pensions (and post-retirement benefits) represent 78.6% ($34.6 billion) of the total benefit amount paid out ($44.5 billion) by the CPP. 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 2018, the maximum monthly retirement pension at age 65 was $1,134.17. The average monthly payment in fiscal year 2017 to 2018 was $569.70.

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 2018 for pensions taken between the ages of 60 and 70 based on actuarial adjustment factors.

Table 2: Maximum monthly retirement pension payments between the ages of 60 and 70 for 2018
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)
60 61 62 63 64 65 66 67 68 69 70
$726 $808 $889 $971 $1,053 $1,134 $1,229 $1,325 $1,420 $1,515 $1,611
-36% -28.8% -21.6% -14.4% -7.2% No adjustment +8.4% +16.8% +25.2% +33.6% +42%

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).

Post-retirement benefits

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 increase the amount of other CPP benefits and they do not determine eligibility for 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 2017 to 2018, 1.2 million CPP retirement pensioners received a total of $440 million in post-retirement benefits. The maximum monthly benefit amount at age 65 for 2018 was $28.35. The average monthly payment in fiscal year 2017 to 2018 was $12.97.

Disability benefits

The CPP provides 2 disability benefits: the monthly CPP disability pension which is provided to working-age contributors with sufficient recent contributions who have a severe and prolonged disability, and a flat-rate benefit provided to the dependent children of disabled contributors. In fiscal year 2017 to 2018, a total of $4.4 billion in benefits were paid to 338,000 disabled beneficiaries and to 83,000 children of disabled beneficiaries. These benefits represented approximately 10.0% of the total benefits paid out by the CPP in fiscal year 2017 to 2018.

The disability pension includes a monthly flat rate, which was $485.20 in 2018. 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 2018, the maximum disability pension was $1,335.83 per month. The average monthly payment in fiscal year 2017 to 2018 was $906.25.

The benefit paid to dependent children of disabled beneficiaries is a flat rate. In 2018, the amount was $244.64 per month. To be eligible, children must be under 18 years of age or under 25 and in full-time attendance at school or university.

Survivor benefits

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 2017 to 2018, survivor benefits represented 10.6% ($4.7 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. Currently, survivor pensions are reduced for childless survivors under the age of 45 who are not disabled. Dependent children of deceased contributors may also be eligible for children’s benefits. In fiscal year 2017 to 2018, there were 1.1 million survivors and 63,000 children of deceased contributors receiving benefits.

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 maximum survivor’s pension for those under age 65 was $614.62 per month in 2018. This includes a flat-rate portion of $189.31 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 $680.50, consisting of 60% of the deceased contributor’s retirement pension. For fiscal year 2017 to 2018, the average monthly payment for all survivor pensions was $333.26.

The benefit paid to dependent children of deceased contributors is a flat rate. In 2018, the amount was $244.64 per month. To be eligible, children must be under 18 years of age or under 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. In fiscal year 2017 to 2018, the average death benefit payment was $2,306.19.

Benefit summary

Table 3 below summarizes the maximum and average monthly amounts paid to beneficiaries by benefit type.

Table 3: Monthly payments by benefit type

Benefit type Maximum monthly amount for 2018 Average monthly amount
(in fiscal year 2017 to 2018)
Retirement pension $1,134.17* $569.70
Post-retirement benefit $28.35* $12.97
Disability pension $1,335.83 $906.25
Survivor’s pension $680.50 $333.26
Death benefit (one-time payment) $2,500.00 $2,306.19

*at age 65

Drop-out provisions

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.

General drop-out

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.

Over-65 drop-out

This provision allows periods of relatively low earnings before age 65 to be replaced by higher earnings after age 65. It 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.

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 7 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.

Disability exclusion

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.

Features

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

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.

Credit splitting

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.

Portability

No matter how many times workers change jobs, and no matter in which province they work, CPP and QPP coverage is uninterrupted.

Indexation

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.

Changes to the Canada Pension Plan starting in 2019

CPP enhancement

The Government of Canada has worked with the provinces and territories to strengthen the retirement income system by enhancing the CPP (the enhanced CPP). Following the signing of a historic agreement in principle by Canada’s Ministers of Finance, 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 will also increase by 14%. Together, these changes once fully implemented will increase the maximum retirement pension by about 50%.

Figure 3: Illustration of enhancement replacement rate

Illustration of Enhancement Replacement Rate

Text description of Figure 3: Illustration of enhancement replacement rate

Figure 3 is a visual illustration of the CPP enhancement, showing that it is comprised of 2 components and how those components interact with the base CPP. The first component sits above the base CPP and increases the replacement rate from 25% to 33% over the same range of earnings. The second component provides 33% income replacement on earnings above the year’s maximum pensionable earnings (YMPE), up to 1.14% of the YMPE.

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 $55,900 in 2018) will increase by 2 percentage 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)
  • In 2024, workers will begin contributing on an additional range of earnings. This range will start at the current earnings limit, called the Year’s Maximum Pensionable Earnings (YMPE), and will extend to a new limit which is 14% higher by 2025, phased in over 2 years. The contribution rate on earnings in this new range will be 8% (shared equally by employers and employees, with self-employed individuals contributing at the full rate)

Figure 4: Illustration of phase-in of contributions

Illustration of Phase-In of Contributions

* Office of the Chief Actuary projection

Text description of Figure 4: Illustration of phase-in of contributions

Figure 4 is a visual illustration of the two-step phase-in of the CPP enhancement and the increased contributions and how that interacts with the base CPP. The first step will gradually increase the contribution rate by 2% over 5 years, from 2019 to 2023, on the same earnings covered by the base CPP. When fully phased-in, this will result in a combined contribution rate of 11.9% on these earnings. The second step will introduce a new contribution rate of 8% on earnings above the YMPE, up to 114% of the YMPE. This new range will be phased in over 2 years, in 2024 and 2025.

More information on the CPP enhancement is available by visiting the Canada Pension Plan Enhancement page.

Reforms resulting from the 2016 to 2018 Triennial Review

To conclude the 2016 to 2018 Triennial Review of the Canada Pension Plan, federal and provincial Ministers agreed in-principle to a set of reforms that would build on the CPP enhancement and further strengthen the Canada Pension Plan. These reforms were unanimously approved by provincial governments, and will take effect in 2019 when the CPP enhancement begins. The reforms will not require an increase to the contribution rates of either the base CPP or the CPP enhancement.

Elimination of the survivors’ pension reductions for young survivors

Under the current CPP rules, survivors who are not disabled and do not have dependent children have their survivor’s pension reduced by 10% for each year they were under the age of 45 when their spouse or common-law partner died. This reduction lasts until age 65, when the survivor’s pension is recalculated. This means that survivors under the age of 35 who are not disabled and do not have dependent children do not receive a survivor’s pension until age 65.

The reforms will allow survivors currently receiving a reduced pension due to their age to begin receiving the unreduced amount in 2019. It also means that individuals who were not eligible for a survivor’s pension due to their age when their partner died will become eligible in 2019. Such individuals will need to apply.

Creation of the Post-Retirement Disability Benefit

The reforms include a new benefit that will provide disability protection to individuals under the age of 65 who are collecting the CPP retirement pension. This new benefit will be equal in value to the flat-rate component of the disability pension, and will be added to the individual’s retirement pension, so long as they meet the same medical and contributory criteria as the disability pension. Dependent children of this new benefit will also be eligible for a child’s benefit. It is estimated that 3,600 individuals will benefit from the change in 2019. This number will increase to about 8,000 by 2024.

Flat-Rate Death Benefit

The reforms will also mean that the death benefit will become a flat rate of $2,500 for contributors who meet the eligibility requirements, regardless of their actual earnings. This change will help the families of lower-income contributors.

Introduction of the Child-Rearing and Disability Drop-ins

The reforms also include drop-in provisions for the CPP enhancement, which will protect the enhanced retirement pensions of individuals who stop working or reduce their earnings to provide care for children under the age of 7 or due to a disability. When determining the amount of the enhanced component of CPP benefits for such individuals, credits would be dropped in to their earnings history. Effectively, this means that the value of their enhanced CPP benefits will be determined as if they had earnings at the level of the drop-in value. The amount of the drop-ins will be based on the individuals’ earnings in the years before the birth of the child or the onset of the disability.

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, 2018, 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:

Table 4: Social Security Agreements

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
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
South Korea May 1, 1999
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, 2018, the CRA reported that there are 1,681,474 employer accounts. In fiscal year 2017 to 2018, the CRA conducted 46,421 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 fiscal year 2017 to 2018, contributions amounted to $48.4 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 2017 to 2018, Service Canada continued its efforts to ensure that eligible Canadians are receiving public pension benefits to which they are entitled, and to encourage them 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 Canadians
  • messaging promoted through the Government of Canada website
  • messaging provided by telephone through its pensions call centre network or by employees providing information in person at Service Canada Centres

Service Canada continues to advance its e-service agenda through enhancements in the 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 people to apply for a CPP retirement pension. In fiscal year 2017 to 2018, approximately 81,000 people, representing 27% of all applications, applied for their CPP retirement pension online.

Using My Service Canada Account, CPP clients can make enquiries, conduct transactions and, if they live in Canada, update their mailing address, telephone numbers and direct deposit information online. Further, CPP clients can view and print copies of their tax slips for the current year and the previous 6 years and view and print an official copy of their Statement of Contributions. Since March 2018, CPP clients can view the last 2 years of their payments, print a benefit attestation letter, apply for a Federal Voluntary Tax Deduction and add, modify or delete their consent to communicate information related to an authorized person to act on their behalf. More information is available by visiting the Service Canada page.

Service Canada continues to implement a comprehensive CPP Service Improvement Strategy. Between today and the completion of the strategy in 2019 to 2020, Canadians will increasingly have more user-friendly electronic services and benefit from faster resolution of issues and strengthened service standards.

Processing benefits

Service Canada continues to deliver the CPP program through a network of 10 processing centres located across the country. In fiscal year 2017 to 2018, Service Canada:

  • processed over 7.6 million transactions, including 1.6 million transactions to put clients into pay for the first time and to renew benefits and another 6.0 million benefit adjustments/account revisions
  • made over 68 million payments valued at $44.5 billion to over 5.8 million clients, including $4.4 billion to 421,000 CPP disability clients
  • supported more than 80,000 Canadians to apply for CPP retirement benefits online, and fully automated the adjudication of more than 850,000 new post-retirement benefits
  • answered 2.4 million CPP and Old Age Security enquiries through its specialized call centre agents and resolved 3.2 million calls through its interactive voice response system

The timely payment of CPP benefits remains a priority. Overall, Service Canada aims to pay eligible clients their CPP retirement pension within their first month of entitlement with an objective of achieving this 90% of the time. In fiscal year 2017 to 2018, the Department exceeded this objective and put 96% of clients in pay for their first month of entitlement (see Table 5).

Following a comprehensive review, in October 2016, Service Canada implemented new and revised CPP disability service standards for speed and timeliness aimed at supporting client-centric service delivery. Since their implementation, the service standards have represented a significant commitment to enhance the delivery of CPP disability, particularly for people with a terminal illness or a grave condition (see Table 5).

Table 5: Canada Pension Plan (CPP) service standards

Service standard National objective National result for fiscal year 2017 to 2018 Average processing time
CPP retirement pension applications
Pay benefits within the first month of entitlement
90% 96% Not applicable
CPP disability pension applications
Initial disability decisions are made within 120 calendar days of receiving a complete application
80% 77% 89 calendar days
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% 89% 4 business days
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% 72% 31 calendar days
CPP disability pension reconsiderations
A decision on a reconsideration request is made within 120 calendar days of receiving the reconsideration request
80% 77% 101 calendar days

Appeals process

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.

General division

In fiscal year 2017 to 2018, the General Division Income Security Section received 2,568 new appeals related to CPP benefits. As of March 31, 2018, the General Division Income Security Section concluded 3,360 appeals related to CPP benefits.Footnote 2

Appeal division

In fiscal year 2017 to 2018, the Appeal Division received 306 appeals of decisions from the General Division Income Security Section related to CPP benefits. As of March 31, 2018, the Appeal Division concluded 589 appeals related to CPP benefits.Footnote 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.

Integrity-related activities 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. 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 identified and mitigated. Integrity-related activities also make use of modern analytical techniques to improve business intelligence and ensure that errors and fraud are managed throughout the program’s life cycle.

As part of its effort to address overpayment situations, ESDC conducts reviews of benefit entitlements and investigations to address situations in which clients are suspected of receiving benefits to which they are not entitled. Through the recovery of overpayments and prevented future incorrect payments, these activities resulted in $16.9 million in accounts receivable as overpayments and prevented an estimated $10.5 million from being incorrectly paid in fiscal year 2017 to 2018. A further estimated $74.2 million has been prevented from being incorrectly paid for future years after fiscal year 2017 to 2018. The recovered overpayments are credited to the CPP, thereby helping to maintain the long-term sustainability of the Plan.

In addition, ESDC’s Identity Management Policy 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-centred service delivery.

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.

The Department has a sound Identity Management Policy aimed at establishing and implementing integrated and consistent practices for the management of clients' identity across multiple service delivery channels (in-person, phone, mail and online). Under this policy, clients know what is expected from them when asked to confirm their identity. A consistent approach to identity management enhances data integrity and quality, improves security and the protection of personal information, and enhances the service experience for clients, by reducing errors and eliminating inefficiencies which could impact wait times for benefits.

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 federal 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.

Funding approach

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 most recent triennial actuarial report on the CPP, the Twenty-seventh Actuarial Report on the Canada Pension Plan as at 31 December 2015, 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 contribution 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 as at 31 December 2015.

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 maintain it, 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.

In keeping with the dual funding nature of the Plan, the enhanced CPP, which will commence in 2019, will ensure fairness across generations. 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. Regulations concerning what happens if the enhanced CPP is not sustainable under the legislated additional contribution rates 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 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 most recent triennial actuarial report on the CPP, the Twenty-seventh Actuarial Report on the Canada Pension Plan as at 31 December 2015, prepared by the Office of the Chief Actuary (OCA), was tabled by the federal Minister of Finance in Parliament on September 27, 2016.

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 are to 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.

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.

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 as at 31 December 2015. 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 as at 31 December 2015 and the conclusions reached by the Chief Actuary about the long-term financial sustainability of the Plan.

A supplemental report, the Twenty-eighth Actuarial Report supplementing the Twenty-seventh 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 enhanced CPP 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 came into force on March 3, 2017. The 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 CPP over the long term.

In addition, a subsequent supplemental report, the Twenty-ninth Actuarial Report supplementing the Twenty-seventh and Twenty-eighth Actuarial Reports on the Canada Pension Plan as at 31 December 2015, was tabled in Parliament on May 1, 2018. This report was prepared by the Chief Actuary to show the long-term financial implications of the changes to CPP benefits under proposed Bill C-74 – the Budget Implementation Act, 2018, No. 1, introduced in Parliament on March 27, 2018. These reforms, which were agreed to in-principle by Canada’s Ministers of Finance in December 2017, as part of the 2016 to 2018 Triennial Review of the Plan, are described in the section “Looking to the Future.” The supplemental report confirms that the changes would not require increases to the legislated contribution rates. These reforms were unanimously approved by provincial governments and will take effect in 2019 when the CPP enhancement begins.

The next triennial actuarial report on the CPP, which will report on the financial state of the Plan as of December 31, 2018, is due by December 2019.

To view the CPP’s actuarial reports, reviews and studies, visit the Office of the Chief Actuary website.

Financial accountability

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.

CPP accounts

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 the CPPIB’s 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, 2018, the CPP net assets totalled $361 billion. The Government of Canada held $4.9 billion to meet CPP financial needs. The remaining $356.1 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, 2018, the Fund held by the CPPIB had an annualized net nominal rate of return of 8.0%. Over that 10-year period, the CPPIB has contributed $183.3 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.

CPPIB reporting

The CPPIB reports its financial performance on a quarterly and annual basis. Legislation requires the CPPIB to hold public meetings every two years in each province, excluding Quebec, which operates the separate 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.

Other expenses

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, 2018.

Operating expenses

CPP operating expenses of $1.668 billion in fiscal year 2017 to 2018 represent 3.75% of the $44.5 billion in benefits paid. Table 6 presents the CPP’s operating expenses for the last 2 years.

Table 6: CPP operating expenses for fiscal year 2017 to 2018 and fiscal year 2016 to 2017

Department/Agency/Crown Corporation Fiscal year 2017 to 2018 (In millions of dollars) Fiscal year 2016 to 2017 (In millions of dollars)
CPP Investment Board* 1,053 923
Employment and Social Development Canada 369 332
Canada Revenue Agency 190 203
Treasury Board Secretariat 33 27
Public Services and Procurement Canada 6 6
Administrative Tribunals Support Service of Canada 14 13
Office of the Superintendent of Financial Institutions (where the Office of the Chief Actuary is housed)/Finance Canada 3 3
Total 1,668 1,507

*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 2017 to 2018, overpayments totalling $99 million were detected, $84 million in overpayments were recovered and debts of $45 million were forgiven. The above figures represent a net decrease of $30 million in the accounts receivable for the year.

Looking to the future

There are a number of changes to the CPP which will take effect on January 1, 2019. In addition to the start of the 7-year phase-in of the CPP enhancement, Ministers agreed-in-principle to a reform package as part of the 2016 to 2018 Triennial Review of the Plan. These reforms were unanimously approved by provincial governments and will take effect on January 1, 2019. These changes will provide further support for the parents of young children and persons with disabilities in the CPP enhancement, eliminate the age-related reduction in the CPP survivor’s pension and provide disability protection for retirement pension recipients under age 65. In addition, to help the families of lower-income workers, the CPP death benefit will also be converted into a flat-rate benefit of $2,500 for all contributors with enough contributions. This reform package will not require increases to the CPP’s legislated contribution rates. More information on these changes is available by visiting the Department of Finance Canada website.

The next Triennial Review of the CPP will begin in the Fall of 2019, following the tabling of the Thirtieth Actuarial Report on the Canada Pension Plan as at December 31, 2018.

Canada Pension Plan Consolidated Financial Statements

View the Canada Pension Plan Consolidated Financial Statements for the year ended March 31, 2018.

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