Now more than ever, Canadians—especially the baby boomers and others who are nearing retirement—are concerned about their financial prospects. Weathering the worst financial crisis since the Depression, they want to know if their retirement income will be safe and secure through this volatile period. What’s important for Canadians to know is that the CPP fund is sound and
sustainable, and is designed to navigate through difficult market cycles.
The Canada Pension Plan (CPP) is one piece of Canadians’ retirement savings puzzle—yet CPP retirement benefits are meant to replace only a portion of the average industrial wage and are not designed to be the only source of income. Canadians also rely on other vehicles to save for their golden years. Choices such as personal savings, employer-sponsored pension plans and RRSPs, for example, should be used together with CPP benefits when saving for retirement.
In the Beginning
Up until the mid-1990s, the sustainability of the CPP was in question—perhaps the main reason why some Canadians believe the CPP won’t be there when they retire. If the recent market volatility and upheaval add to their concerns, they should feel more secure knowing that the CPP fund is managed with a long-term investment horizon of decades and generations in a broadly diversified portfolio.
Canadians’ concerns over the CPP can be put to rest because the money managed by the CPP Investment Board today is not being used to pay current benefits. It will be another 11 years before the first dollars of the CPP fund will be used to help pay a small portion of CPP benefits.
A little more than 10 years ago, the CPP was facing a funding crisis. However, bold measures enacted by the federal government and nine provinces resulted in a reform package that put the plan back on track for the long term. Part of that reform package was the creation of a fast-growing pool of capital to help partially pre-fund the plan to be managed by the CPP Investment Board, a professional investment management organization operating at arm’s length from governments. Further, changes to the CPP Investment Board’s legislation require a level of consensus that is even higher than the hurdle required to change the constitution: consent from the federal government plus two-thirds of the provinces representing two-thirds of the population.
The CPP Today
While the CPP Investment Board cannot take credit for the reforms, we can be proud of what our political leaders did more than 10 years ago, which can serve as a national model for others. As recently as July 2009, Canada’s chief actuary reaffirmed that the CPP is sustainable throughout the 75-year time frame of his 2007 report. As well, on May 25, 2009, the federal and provincial finance
ministers who oversee the CPP confirmed at the conclusion of the triennial review that the CPP is financially sound.
The CPP fund now stands at approximately $116 billion, and approximately $28 billion of additional cash flow is anticipated between now and 2019, when a portion of the assets will be used for CPP benefits. While recent market conditions have created uncharted territory for investors, the CPP Investment Board, with its strong governance model, has delivered approximately $31.8 billion in investment income since its inception in 1999.
Ultimately, the CPP remains an important part of the pension puzzle in Canada, and the CPP Investment Board will continue to fulfill its mandate to help secure the CPP for 17 million contributors and beneficiaries.
Ian Dale is senior vice-president, communications and stakeholder relations, with the CPP Investment Board.
idale@cppib.ca
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© Copyright 2009 Rogers Publishing Ltd. This article first appeared in the September 2009 edition of BENEFITS CANADA magazine.