The Office of the Chief Actuary (OCA) says that the Canada Pension Plan's (CPP) expenditures will increase significantly over the next decade, and predicts that the number of people who collect retirement benefits will double by 2050. The CPP remains particularly generous to baby boomers, who are earning nearly twice as much as younger generations on their contributions to the plan.
The OCA is an independent unit within the Office of the Superintendent of Financial Institutions (OSFI) that provides a range of actuarial valuation and advisory services to the Government of Canada. Every three years, the OCA reviews the financial state of the Canada Pension Plan (CPP) and submits a report to the Federal Minister of Finance.
$70 billion by 2025
The most recent study (the 27th since the CPP was founded) was published this week, and it calculates that total expenditures will grow from approximately $43 billion in 2016 to $70 billion by 2025. What's more, the number of retirement beneficiaries will increase from 5.1 million in 2016 to 10.2 million in 2050. The CPP's assets are expected to earn an average annual real rate of return of 3.9% between 2016 and 2090.
Overall, the OCA believes that the legislated contribution rate of 9.9% is sufficient to finance the CPP over the long term. However, the report says that contribution revenue is only expected to exceed expenditures until 2020; investment income becomes increasingly important in later years, and is projected to represent 30% of revenues by 2025 and 33% of revenues by 2050.
Return of 4% on their contributions
The actuarial report also confirms research conducted by The Fraser Institute earlier this year, which found that older generations are earning disproportionately high rates of return on their CPP contributions. The OCA has calculated internal rates of return by age group, and reveals that those born in 1950 are earning a real rate of return of 4% on their contributions, while the cohorts from 1980, 1990, 2000, and 2010 are all earning a real rate of just 2.3%
"Earlier cohorts are shown to receive higher value from the CPP, since they began their contributions before the current partial funding regime was implemented," reads the report.