Canada Pension Plan: Good for another 75 years…

According to actuaries, the CPP (Canada Pension Plan) is viable and strong for another 75 years based on a report presented to government by the Office of the Chief Bean Counter Actuary. I took a look through the 132 page report and it is pretty detailed.

Canadaflag.jpgSection 6 outlines the uncertainty of the projections and further provides an analysis of a generally younger population and a generally older population than they are expecting. It further analyzes the impacts of varying levels of financial market "shock" – including consecutive years of negative double-digit returns coupled with higher equity exposure in the portfolio.

It looks like even if there was a triple-threat of 1) Longer life expectancies than they think (projected out to 2050), 2) People retiring earlier and 3) Moderate to Severe financial market shock that the legislated contribution of 9.9% would only need to be increased by 30-50 basis points (i.e. 9.9% increased to 10.2-10.4%). And if you are "employed" that would mean an increase of 15-25 basis points since the "employer" is responsible for half your contributions…

I constantly hear about how CPP may not be around when we retire and I’ve always wondered where this belief came from and if it was substantiated. There have been 22 previous actuarial reports on the CPP – I don’t think any of them predict doom and gloom.  It seems that perhaps this "myth" was propagated by financial institutions? If there is a fear that retirement benefits won’t be around, there is more impetus to invest… :)

I don’t think this "news" means you should save less money now by any means – but if you had factored in CPP benefits in your financial plan, maybe now you’ll feel a little better about their inclusion. AND if you are curious to see how your plan is affected without CPP benefits – just ask your planner to create a "what-if" projection – it’s very easy to do.

If you want to read the report for yourself and make your own determination: CLICK HERE TO READ THE 23RD ACTUARIAL REPORT ON THE CANADA PENSION PLAN (link to pdf on the website of The Office of the Superintendent of Financial Institutions Canada)

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Preet Banerjee
Preet Banerjee an independent consultant to the financial services industry and a personal finance commentator. You can learn more about Preet at his personal website and you can click here to follow him on Twitter.
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  • FourPillars

    I think the fear that cpp will disappear comes from the US news where apparently social security is not on as good a footing as cpp. It also comes from the various "investment" companies.


  • Preet

    Yes, I think you’re right. Perhaps some people are extrapolating the American problems across the border…

    The Americans certainly seem to have their work cut out for them don’t they?

    While I think the CPP viability is fundamentally sound due to the mechanics of the plan, certainly it has been bolstered by our economic prosperity of late.

    Slightly off-topic: I heard yesterday that a $10 swing in oil prices equates to about 3 cents for our dollar – I have yet to back test that myself, but certainly the premise is not new. I also heard from on Oil CEO that we are on the hump of "peak oil". With oil accounting for a significant chunk of our loonie, what are the forward prospects of being on the downward slope from peak oil this decade? Hmmm…. enquiring minds want to know! :)