Editing Canada Pension Plan

{{short description|Contributory, earnings-related social insurance program}}
{{Use Canadian English|date=January 2023}}
{{more citations needed|date=March 2013}}
The '''Canada Pension Plan''' ('''CPP'''; {{langx|fr|Régime de pensions du Canada}}) is a contributory, earnings-related [[social insurance]] program. It is one of the two major components of [[Canada]]'s public [[retirement]] income system, the other being [[Old Age Security]] (OAS). Other parts of Canada's retirement system are private pensions, either employer-sponsored or from tax-deferred individual savings (known in Canada as a [[registered retirement savings plan]]).<ref>{{cite web |title=Canada's Retirement Income System |url=http://www.hrsdc.gc.ca/en/isp/common/hrsdc/ris/rismain.shtml |archive-url=https://web.archive.org/web/20090609054808/http://www.hrsdc.gc.ca/eng/isp/common/hrsdc/ris/rismain.shtml |archive-date=2009-06-09 }}</ref> As of June 30, 2024, [[CPP Investments]] (CPPIB) manages over [[Canadian dollar|C$]]646 billion in investment assets for the Canada Pension Plan on behalf of 22 million Canadians.<ref name="2024Jun">{{cite web| url=https://www.cppinvestments.com/|title=CPP Investments| access-date=August 30, 2024}}</ref> CPPIB is one of the world's largest pension funds.<ref>{{cite web| url=https://www.ft.com/content/e6af80c8-3be2-11e7-ac89-b01cc67cfeec |archive-url=https://ghostarchive.org/archive/20221210/https://www.ft.com/content/e6af80c8-3be2-11e7-ac89-b01cc67cfeec |archive-date=2022-12-10 |url-access=subscription |url-status=live| title=Canada Pension Plan triples returns on global markets rally| date=May 18, 2017| first=Jennifer| last=Thompson| website=ft.com}}</ref>

==Description==
The CPP mandates all employed Canadians 18 years of age and over to contribute a prescribed portion of their earnings income (with an equal matching amount contributed by their employer) to a federally administered pension plan. The plan is administered by [[Employment and Social Development Canada]] on behalf of employees in all [[Provinces and territories of Canada|provinces and territories]] except Quebec, which operates an equivalent plan, the [[Quebec Pension Plan]] (''Régime des rentes du Québec'' in French). Because the Constitutional authority for pensions is shared between the provincial and federal governments, stewardship for the CPP is jointly shared. As a result, major changes to the CPP (including those that alter how benefits are calculated) require the approval of at least seven Canadian provinces representing at least two-thirds of the country's population.
John Graham is the current CEO of the 
CPP.<ref>{{cite web|url=http://www.fin.gc.ca/n16/data/16-113_3-eng.asp|title=Backgrounder: Canada Pension Plan (CPP) Enhancement|last=Finance|first=Government of Canada, Department of|website=www.fin.gc.ca|access-date=2017-12-19|archive-date=2017-12-22|archive-url=https://web.archive.org/web/20171222051459/http://www.fin.gc.ca/n16/data/16-113_3-eng.asp|url-status=dead}}</ref>

A province may choose to opt out of the Canada Pension Plan, as Quebec did in 1965, but must offer a comparable plan to its residents.<ref name="cppactsect3">{{cite web | url = https://laws-lois.justice.gc.ca/eng/acts/c-8/page-2.html# | title = Canada Pension Plan (R.S.C., 1985, c. C-8) | access-date = 2019-11-16 | date = 2018-12-15 }}</ref>{{rp|§3(1)}} Any province may establish an additional or supplementary plan anytime, as under section 94A of the Canadian Constitution, pensions are a provincial responsibility.

The CPP Fund is a professionally managed investment fund, overseen by the [[CPP Investments]] (CPPIB), an independent organization that reports to the federal and provincial governments. The CPPIB's investment strategy is guided by a set of principles that emphasize long-term benefits security, a focus on quality, and a commitment to sustainability and responsible investment practices. CPPIB also regularly reports on its investment performance and activities and is subject to oversight by the federal and provincial governments.<ref>{{Cite web |title=CPP Investments |url=https://www.cppinvestments.com/ |access-date= |website= |language=en-US}}</ref>

== History ==
The [[Liberal Party of Canada|Liberal]] government of Prime Minister [[Lester B. Pearson]] established the Canadian Pension Plan in 1965.

Beginning in January 2024, a second earnings ceiling will be introduced, also known as CPP2. The first ceiling will be $68,500, while the second ceiling will be $73,200. The second ceiling is calculated "in accordance with the CPP legislation and <nowiki>[taking]</nowiki> into account the growth in average weekly wages and salaries in Canada".<ref>{{cite web |url=https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/payroll/calculating-deductions/making-deductions/second-additional-cpp-contribution-rates-maximums.html |title=
Canada Revenue Agency announces maximum pensionable earnings and contributions for 2024 |publisher=Government of Canada |date=November 1, 2023 |accessdate=November 25, 2023}}</ref>

==Benefits==
The primary benefit provided by the CPP is a monthly retirement pension. Currently, this is equal to 25% of the average earnings on which CPP contributions were made over the entire working life of a contributor from age 18 to 65 in constant dollars. The earnings upon which contributions are made are subject to an annual limit, which was $58,700 as of 2020.<ref>Service Canada. Canada Pension Plan Retirement Pension (booklet - March 2014), ISPB-147-03-14E.</ref> However, under changes being phased in by 2025, the pension benefit will rise to 33.33% of earnings on which contributions were made, and the maximum amount of income covered by the CPP will rise by 14% from the projected 2025 limit of $69,700 to $79,400.<ref name="osfi-bsif.gc.ca">{{cite web|url=http://www.osfi-bsif.gc.ca/Eng/wn-qn/Pages/2016-10-CPP28.aspx|page=28|title=Actuarial Report on the Canada Pension Plan|website=Osfi-bsif.gc.ca|access-date=18 January 2019|archive-url=https://web.archive.org/web/20181018160544/http://www.osfi-bsif.gc.ca/Eng/wn-qn/Pages/2016-10-CPP28.aspx|archive-date=18 October 2018|url-status=dead}}</ref>

The CPP enhancement will serve as a top-up to the existing, or base, CPP. For individuals who work and make contributions in 2019 or later, enhanced components of benefits will be calculated and added to the base portion of the benefit. These calculations are similar but follow different formulae.

When calculating the base portion of the CPP, there is a general drop-out provision<ref>{{cite web|author=Please select all that apply |url=http://www.servicecanada.gc.ca/eng/services/pensions/cpp/drop-out.shtml |title=Canada Pension Plan - Eligibility - Canada.ca |publisher=Servicecanada.gc.ca |date= 2015-10-08|access-date=2019-01-18}}</ref> that enables the lower-earnings years in a contributor's contributory period to be dropped from the calculation of the average. Since 2014, the lowest 17% of earnings are dropped in this way, accounting for up to eight years of contributory earnings.

Benefits under the CPP enhancement will be calculated based on a forty-year period, using the best forty years to calculate the benefit. This calculation effectively allows seven years to be dropped from the benefit calculation (for an individual who begins contributing at age 18 and ends at age 65).

In October 2018, the average [http://www.servicecanada.gc.ca/eng/services/pensions/cpp/retirement/index.shtml monthly benefits] for a new retirement pension (taken at age 65) was just over $664.00 per month, and the maximum amount in 2019 was $1,154.58 per month. Monthly benefits are adjusted every year based on the Consumer Price Index. CPP benefit payments are [[Taxation in Canada|taxable]] as ordinary income.

The standard age for receiving the retirement pension is age 65; however, individuals may begin collecting a permanently reduced pension as early as age 60 or defer payment until age 70 to increase the monthly payment. For those who take the pension early (the majority), the reduction factor is 0.6% for each month that benefits are received before age 65 (to a maximum reduction of 36%, at age 60). For those who defer, the adjustment rate is 0.7% for each month that one delays in receiving it, to a maximum increase of 42% at age 70. There is no financial benefit to delaying beyond age 70.<ref>Service Canada. Canada Pension Plan Retirement Pension (booklet - March 2014), ISPB-147-03-14E</ref>

The CPP also provides disability pensions to eligible workers under the age of 65 who become disabled in a severe and prolonged fashion, and a monthly survivor's pension to the spouse or common-law partners of contributors who die (having made sufficient contributions).

An application must be filed at least six months in advance in order to receive CPP benefits. If an application for disability pension is denied, an appeal can be made for reconsideration, and then to the Social Security Tribunal. All CPP benefits in pay are indexed annually to the Consumer Price Index.

==Contribution rates==
===1966 to 1996===
From 1966 to 1986, the contribution rate was 3.6%. The rate was 1.8% for employees (and a like amount for their employers) and 3.6% in respect of self-employed earnings. Contribution rates began rising by 0.2% per year in 1987. By 1997, this had reached combined rates of 6% of pensionable earnings.

===1998 reforms===
By the mid-1990s, the 3.6% contribution rate was not sufficient to keep up with Canada's aging population,<ref>{{cite web|page=51|title=18th Actuarial Report on the CPP|url=http://www.osfi-bsif.gc.ca/Eng/Docs/CPP1801.pdf|website=Osfi-bsif.gc.ca|access-date=18 January 2019}}</ref> and it was concluded that the "pay-as-you-go" structure would lead to excessively high contribution rates within about 20 years, due to Canada's changing [[demographics]], increased [[life expectancy]], a changing [[Economy of Canada|economy]], benefit improvements, and increased usage of disability benefits (all referenced in the Chief Actuary's study of April 2007, noted above). The same study reports that the reserve fund was expected to run out by 2015. This impending [[pensions crisis|pension crisis]] sparked an extensive review by the federal and provincial governments in 1996. As a part of the review, the federal government actively conducted consultations with the Canadian public to solicit suggestions, recommendations, and proposals on how the CPP could be restructured to achieve sustainability again.{{FACT|date=October 2024}} As a result of this public consultation process and internal review, the following key changes were proposed and jointly approved by the federal and provincial governments in 1997:

* Increase total CPP annual contribution rates (employer/employee combined) from 6% of pensionable earnings in 1997 to 9.9% by 2003.
* Continuously seek out ways to reduce CPP administration and operating costs.
* Move toward a hybrid structure to take advantage of investment earnings on accumulated assets. Instead of a "pay-as-you-go" structure, the CPP is expected to be 20% funded by 2014, with this funding ratio to constantly increase thereafter toward 30% by 2075 (that is, the CPP Reserve Fund will equal 30% of the liabilities, or accrued pension obligations).
* Create the CPP Investments (CPPIB).
* Review the CPP and CPPIB every 3 years.

[https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/payroll/payroll-deductions-contributions/canada-pension-plan-cpp/cpp-contribution-rates-maximums-exemptions.html As of 2019], the prescribed employee contribution rate was 4.95% of a salaried worker's gross employment income between $3,500 and $57,400, to a maximum contribution of $2,668. The employer matches the employee contribution, effectively doubling the employee's contributions. Self-employed workers must pay both halves of the contribution, or 9.9% of their pensionable income, when filing their income tax return. These rates have been in effect since 2003.<ref>{{cite journal |last1=Beath |first1=Alexander |last2=Betermier |first2=Sebastien |last3=Flynn |first3=Chris |last4=Spehner |first4=Quentin |title=The Canadian Pension Fund Model: A Quantitative Portrait |journal=SSRN Electronic Journal |date=2020 |doi=10.2139/ssrn.3661876 |ssrn=3661876 |url=https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3661876 |access-date=31 December 2024|url-access=subscription }}</ref>

===2017 reforms===
The [[29th Canadian Ministry|federal government]] and its provincial counterparts moved to enhance the Canada Pension Plan to provide working Canadians with more income in retirement.<ref name="McFarlandMcGugan">{{cite news|last1=McFarland|first1=Janet|last2=McGugan|first2=Ian|title=A new premium on retirement|url=https://www.theglobeandmail.com/globe-investor/retirement/cpp-reform-whats-changing-and-how-it-will-affectyou/article30551445/|access-date=6 March 2017|work=[[The Globe and Mail]]|date=5 January 2017}}</ref> These changes were principally motivated by the declining share of the workforce that was covered by an employer [[defined-benefit pension]] plan, which had fallen from 48% of men in 1971 to 25% by 2011.<ref name="McFarlandMcGugan"/> They were given additional impetus by moves on the part of the government of [[Ontario]] to launch the [[Ontario Retirement Pension Plan]], a supplementary provincial pension plan intended to begin in 2018.<ref name="McFarlandMcGugan"/>

Unlike the existing, or base, CPP, the enhancement to the Canada Pension Plan will be fully funded, meaning that benefits under the enhancement will slowly accrue each year as an individual works and makes contributions. Additionally, the enhancement will be phased in over a period of seven years, starting in 2019. When fully mature, the enhanced CPP will provide a replacement rate of one third (33.33%) of covered earnings, up from the quarter (25%) provided previously. Additionally, the maximum income covered by the CPP will increase by 14% by 2025 (projected by the Chief Actuary of Canada to be $79,400 in 2025, compared to the projected normal limit of $69,700 in the same year in the 28th Actuarial Report on the CPP<ref name="osfi-bsif.gc.ca"/>). The combination of the increased replacement rate and increased earnings limit will result in individuals receiving retirement pensions that are 33% to 50% higher, depending on their earnings across their working years. (The maximum retirement pension will increase by 50% but will require 40 years of contributions on earnings at the new maximum.) Workers earning the 2016 maximum covered wage of $54,900 a year would receive an additional $4,390 annually (approximately $365.83 monthly).<ref name="McFarlandMcGugan"/>

To finance the expanded pensions and maintain the soundness of the plan, contributions to the CPP by workers and their employers will each rise 1% from current levels to 5.95% over the existing band of covered earnings. This increase will be phased in over five years starting in 2019. The increase to the earnings threshold will be phased in over two years starting in 2024. Workers and their employers will contribute 4% on earnings in this range (i.e., earnings above the normal earnings limit and below the new, higher one). To ease the impact of the increased contribution on near-term disposable income, worker contributions will become tax-deductible.<ref name="McFarlandMcGugan"/>

==Funding==

===Description===
The base CPP is funded on a "steady-state" basis, with its current contribution rate set so that it will remain constant for the next 75 years, by accumulating a reserve fund sufficient to stabilize the asset/expenditure and funding ratios over time. This system is a hybrid between a fully funded one and a "[[pay-as-you-go tax|pay-as-you-go]]" plan. In other words, assets held in the CPP fund are by themselves insufficient to pay for all future benefits accrued to date but sufficient to prevent contributions from rising any further. While a sustainable path for this particular plan, given the indefinite existence of a government, it is not typical of other public- or private-sector pension plans. A study published in April 2007 by the CPP's chief [[actuary]] showed that this type of funding method is "robust and appropriate" given reasonable assumptions about future conditions.<ref>{{cite web|page=7|title=Optimal Funding of the Canada Pension Plan: Actuarial Study |publisher=[[OSFI|Office of the Superintendent of Financial Institutions Canada]]|url=http://www.osfi-bsif.gc.ca/eng/docs/optimal_funding_cpp.pdf|website=Osfi-bsif.gc.ca|access-date=18 January 2019}}</ref>

The enhancement to the CPP will be fully funded, meaning that each generation will pay for the benefits it receives. Contributions made to the enhancement will be directed into a separate account.

The chief actuary submits a report to [[Parliament of Canada|Parliament]] every three years on the financial status of the plan. Future reports will report on both the base and enhanced components of the plan.

===Assets===
As noted in the 27th Actuarial Report on the Canada Pension Plan, if one uses the "closed group approach", the plan has an enormous unfunded liability. As of December 31, 2015, the CPP's unfunded liability was $884 billion, which is the difference between its liabilities ($1.169 trillion) and its assets ($285 billion).<ref name="ReferenceA">{{cite web|page=48 (bottom footnote)|title=27th Actuarial Report on the Canada Pension Plan|url=http://www.osfi-bsif.gc.ca/Eng/Docs/cpp27.pdf|website=Osfi-bsif.gc.ca|access-date=18 January 2019}}</ref>

===Unfunded liability===
While the unfunded liability has been increasing with every published Actuarial Report, the assets as a percentage of liabilities using the closed group approach has also been increasing since the 1996 reforms. The unfunded liabilities reported in the last few reports are:

{| class="wikitable"
|-
! Year !! Actuarial Report !! Unfunded Liability !! Assets/Liabilities
|-
| 1997 || 17th || $428 billion || 7.8%
|-
| 2000 || 18th || $443 billion<ref>Page 113 of the 18th Actuarial Report on the Canada Pension Plan http://www.osfi-bsif.gc.ca/Eng/Docs/CPP1801.pdf</ref> || 9.0%
|-
| 2003 || 21st || $516 billion || 11.6%
|-
| 2006 || 23rd || $620 billion || 15.5%
|-
| 2009 || 25th || $748 billion<ref>Page 73 of the 26th Actuarial Report on the Canada Pension Plan http://osfi-bsif.gc.ca/eng/docs/cpp25.pdf</ref> || 14.5%
|-
| 2012 || 26th || $830 billion<ref>Page 48 (bottom footnote) of the 26th Actuarial Report on the Canada Pension Plan http://www.osfi-bsif.gc.ca/Eng/Docs/cpp26.pdf</ref> || 17.4%
|-
| 2015 || 27th || $884 billion<ref name="ReferenceA"/> || 24.4%
|-
| 2018 || 30th || $885 billion || 29.6%
|-
| 2021 || 31st || $1,103.2 billion<ref>Page 187-188 of the 31st Actuarial Report on the Canada Pension Plan https://www.osfi-bsif.gc.ca/Eng/Docs/CPP31.pdf</ref> || 33.5%
|}

Using the "open group approach" ("one that includes all current and future participants of a plan, where the plan is considered to be ongoing into the future, that is, over an extended time horizon"), the plan is reported to have assets in excess of $2.5 trillion.<ref name="ReferenceB">Page 48 of the 27th Actuarial Report on the Canada Pension Plan http://www.osfi-bsif.gc.ca/Eng/Docs/cpp27.pdf</ref> This approach uses a different definition of the term "assets". "Assets" are the sum of (1) the CPP's current assets and (2) the [[present value]] of future contributions for the next 150 years, totalling $2.544 trillion.<ref name="ReferenceB"/>

Unlike most pension plans, the unfunded liability is not reported on the balance sheet of the Canada Pension Plan's financial statements.<ref>Page 6.61 of volume 1 of the 2015 Public Accounts of the Government of Canada - http://www.tpsgc-pwgsc.gc.ca/recgen/cpc-pac/2015/pdf/2015-vol1-eng.pdf {{Webarchive|url=https://web.archive.org/web/20160803003458/http://www.tpsgc-pwgsc.gc.ca/recgen/cpc-pac/2015/pdf/2015-vol1-eng.pdf |date=2016-08-03 }}</ref> Consequently, the balance sheet reports that the CPP's assets exceed its liabilities by $269 billion as of March 31, 2015.

==CPP Investment Board==
{{Main|CPP Investment Board}}

Under the direction of then [[Minister of Finance (Canada)|Finance Minister]] [[Paul Martin]], [[CPP Investments]] (CPPIB) was created in 1997 as an organization independent of the government to monitor and invest the funds held by the CPP. In turn, the CPPIB created the CPP Reserve Fund. The CPP Investment Board is a [[Crown corporations of Canada|Crown corporation]] created by an Act of Parliament. It reports [[quarterly]] on its performance, has a professional management team to oversee the operation of various aspects of the CPP reserve fund and to plan changes in direction, and a board of directors that is accountable to but independent from the federal government. The board reports annually to Parliament through the federal [[Minister of Finance (Canada)|Minister of Finance]].<ref>{{cite news|url=https://www.cbc.ca/news/business/canada-pension-plan-mulls-yahoo-buy-report-says-1.1033059 |title=Canada Pension Plan mulls Yahoo buy, report says - Business - CBC News |publisher=Cbc.ca |date=2011-10-20 |access-date=2014-06-04}}</ref>

==Quebec Pension Plan==
Quebec is the only province that opted out of the CPP upon its formation in 1965; the [[government of Quebec]] runs its own pension program. The '''Quebec Pension Plan''' ('''QPP'''; {{langx|fr|Régime des rentes du Québec; RRQ|links=no}}) is Quebec's version of the Canada Pension Plan. The QPP is managed by '''{{langr|fr|Retraite Québec}}''', which was formed from a merger of the {{langr|fr|Commission administrative des régimes de retraite et d'assurances}} (CARRA) and the {{langr|fr|Régie des rentes du Québec}} (RRQ) in 2016. Closely mirroring the CPP, the QPP is a contributory earnings-related pension plan that pays benefits in the event of the earner becoming disabled, retiring, or dying. Both Quebec and the federal tax benefits are paid from the QPP.<ref>{{cite journal |last1=Béland |first1=Daniel |last2=Weaver |first2=R. Kent |title=Federalism and the politics of the Canada and Quebec Pension Plans |journal=Journal of International and Comparative Social Policy |date=February 2019 |volume=35 |issue=1 |pages=25–40 |doi=10.1080/21699763.2018.1526698 |url=https://www.cambridge.org/core/journals/journal-of-international-and-comparative-social-policy/article/abs/federalism-and-the-politics-of-the-canada-and-quebec-pension-plans/D773DE2C645640C0C3FF15ECBDC802B3 |access-date=31 December 2024|url-access=subscription }}</ref>

===Increase in contribution rate===
The QPP's contribution rate was 9.9% prior to 2012. In accordance with the 2011–12 Budget of the Government of Quebec, the contribution rate was increased by 0.15% per year for six years from 2012 to 2017. Consequently, the contribution rate increased to 10.8% for 2017 and subsequent years.<ref>See page 16 - "Meeting the Expectations of Quebers of Every Generation" http://www.budget.finances.gouv.qc.ca/budget/2011-2012/en/documents/retirement.pdf</ref><ref>Government of Quebec http://www.rrq.gouv.qc.ca/en/employeur/role_rrq/Pages/cotisations.aspx {{Webarchive|url=https://web.archive.org/web/20160913062443/http://www.rrq.gouv.qc.ca/en/employeur/role_rrq/Pages/cotisations.aspx |date=2016-09-13 }}</ref><ref>{{cite web|title=The Québec Pension Plan|url=http://www.rrq.gouv.qc.ca/en/programmes/regime_rentes/Pages/regime_rentes.aspx|website=Province of Quebec|access-date=27 August 2017|language=en|archive-url=https://web.archive.org/web/20170827044750/http://www.rrq.gouv.qc.ca/en/programmes/regime_rentes/Pages/regime_rentes.aspx|archive-date=27 August 2017|url-status=dead}}</ref>

==See also==
* [[Fiscal imbalance in Australia]]
* [[Pensions in Canada]]

==References==
{{reflist}}

==External links==
* [http://laws-lois.justice.gc.ca/eng/acts/C-8/FullText.html Canada Pension Plan Act]
* [http://www.cra-arc.gc.ca/tx/bsnss/tpcs/pyrll/clcltng/cpp-rpc/menu-eng.html CPP and payroll calculations]
* [http://www.cppib.com/en/home.html CPP Investment Board website] 
* [http://www.esdc.gc.ca/eng/retirement/cpp/index.shtml CPP website]
* [http://www.cppib.com/documents/1591/2017_Annual_Report.pdf 2017 Annual Report]
* [http://www.osfi-bsif.gc.ca/Eng/Docs/CPP2104.pdf 21st Actuarial Report (as at December 31, 2003)]
* [http://www.osfi-bsif.gc.ca/Eng/Docs/cpp23.pdf 23rd Actuarial Report (as at December 31, 2006)]
* [http://www.osfi-bsif.gc.ca/Eng/Docs/CPP25.pdf 25th Actuarial Report (as at December 31, 2009)] 
* [http://www.osfi-bsif.gc.ca/Eng/Docs/cpp26.pdf 26th Actuarial Report (as at December 31, 2012)]
* [http://www.osfi-bsif.gc.ca/Eng/Docs/cpp27.pdf 27th Actuarial Report (as at December 31, 2015)]
* [http://www.rrq.gouv.qc.ca/en/programmes/regime_rentes/ The Régie des rentes website]

{{Authority control}}

[[Category:Canada Pension Plan| ]]
[[Category:Retirement in Canada]]
[[Category:1966 establishments in Canada]]
[[Category:Public pension funds in Canada]]
[[Category:Pensions in Canada]]
[[Category:Social security in Canada]]
[[Category:Lester B. Pearson]]
[[Category:Employment and Social Development Canada]]