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The Canada Pension Plan (CPP) is a contributory, earnings-related social insurance program. It forms one of the two major components of Canada's state-sponsored retirement income system, the other component being Old Age Security (OAS). The intention of the CPP program is to mandate all employed Canadians 18 and over to contribute a prescribed portion of their earnings income to a nationally administered pension plan. The plan is administered by Human Resources and Social Development Canada on behalf of employees in all provinces and territories except Québec.

The CPP is not fully funded and is sometimes referred to as a "pay-as-you-go" plan. In other words, assets held in the CPP fund are purposely insufficient to pay for all future benefits accrued to date. Future sustainability of the CPP relies on future CPP contributions (plus the assets built up to date) being equal to or greater than CPP benefit payments expected to be paid out. This is typical of social insurance schemes, but atypical of other public or private sector pension plans. The CPP's chief actuary submits a report to parliament every three years.

Contents 1 History 2 Contributions and Benefits 3 CPP Investment Board 3.1 Future and Direction 3.2 Growth and Strategy 3.3 Performance 4 Quebec Pension Plan (QPP) 5 References 6 External links

The CPP was established in 1966 by the Liberal government of Prime Minister Lester B. Pearson. At its inception, the prescribed CPP contribution rate was 1.8% of an employee's gross income. Over time, the contribution rate was increased slowly. However, by the 1990s, it was concluded that the "pay-as-you-go" structure was not sustainable at then current contribution levels, due to Canada's changing demographics, increased life expectancy of Canadians, and a changing economy.^{[citation needed]} It was estimated that CPP benefits paid out would exceed CPP contributions in 2022^{[citation needed]}. This impending pension crisis sparked an extensive review by the federal and provincial governments in 1996. As a part of the major review process, 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 once again. As a direct result of this public consultation process and internal review of the CPP, the following key changes were proposed and approved by the Federal government in 1997:

• Total CPP contribution rates (employer/employee combined) were increased annually from 6% of pensionable earnings in 1997 to 9.9% by 2003.
• Continuously seek out ways to reduce CPP administration and operating costs.
• Move towards a hybrid structure to take advantage of investment earnings on accumulated assets. Instead of being a completely "pay-as-you-go" structure, the CPP is expected to be 20 per cent funded by 2017 (that is, the CPP Reserve Fund will equal 20 per cent of the "liabilities" - or accrued pension obligations).
• Creation of the CPP Investment Board (CPPIB).
• Review the CPP and CPPIB every 3 years.

In 2006, the prescribed contribution rate is 4.95% of a worker's gross employment income between $3,500 and $42,100, up to a maximum contribution of $1,910.70 [1]. The employer matches the employee contribution, effectively doubling the contributions of the employee. If a worker is self-employed, he/she must pay both halves of the contribution.

Historical contribution rates can be found here.

When the contributor reaches eligible retirement age (typically after age 60), the CPP provides regular pension benefit payments to the contributor, calculated by how much that person contributed. CPP benefits are paid monthly until the contributor's death. CPP benefit payments are taxable as ordinary income. The CPP also provides disability pensions to eligible workers who become permanently disabled and survivor benefits to workers who die before retirement.

Under the direction of then Finance Minister Paul Martin, the CPP Investment Board was created in 1997 as an organization independent of the government to monitor and invest the funds held by the CPP. In turn, the CPP Investment Board created the CPP Reserve Fund. The CPP Investment Board is organized like a publicly traded company. It reports quarterly on its performance, has a management team to oversee the operation of various aspects of the CPP reserve fund and also to plan changes in direction, and a board of directors that is accountable to the federal government.

Some civil society groups, like ACT for the Earth, have expressed concerns that the CPP has invested at least $2.87 billion in companies CPP Investment Board members are connected to, which could be considered significant conflicts of interest.[2]

David Denison is the current Chief Executive Officer of the Canada Pension Plan Investment Board. An article in the May 18, 2006 Globe and Mail reported that Mr. Denison plans to increase the fund's foreign investments. About one-third of the fund's assets are now invested in securities domiciled outside Canada, largely in the United States and Western Europe. In 2007 the CPPIB plans to broaden the scope of those investments to include emerging markets, although Mr. Denison would not pinpoint a specific country or area. “Canada as a single market cannot accommodate the future growth of our organization,” said Mr. Denison.

The CPP reserve fund receives its funding from the CPP and invests those funds like a typical large fund manager would. The CPP reserve fund needs to achieve a goal of 4.1% return (inflation-adjusted) in order for the CPP to be self-sustainable^{[citation needed]}. As indicated in its quarterly report in August 2005, the CPP reserve fund averaged 7.2% return in the past 5 years. Adjusted for inflation, the real rate of return is 4.6%, which means that it has achieved its stated goal thus far.

The CPP reserve fund is aiming to achieve the following growth targets (in assets):^[1]

• $147 billion by 2010.
• $200 billion by 2015.
• $592 billion by 2030.
• $1.55 trillion by 2050.

The strategies used to achieve these targets are listed on the CPPIB website, and includes the following:

1. Diversification. In 1997, the CPP fund was 100% invested in federal government bonds, but it has since diversifed not only by asset class, but also internationally.
2. Employing basic asset allocation theories. With diversification of investments as one of their objectives, the current asset mix is now as follows^{[citation needed]}:
   • Public Equity => 55.2%
   • Federal & Provincial bonds => 33.1%
   • Private equity => 3.6%
   • Cash+Money Market => 4.1%
   • Real return assets => 4%
3. Using equity firms to assist in achieving targets for each asset class. The CPP reserve fund allocates certain amounts to various pre-qualified equity firms to be managed and used towards reaching the growth targets. For example, the CPP Investment Board hires private equity firms to help it invest in private companies, fund managers to help it invest in public equities, bond managers to assist in investing in bonds (within Canada and foreign bonds), and so forth.

The total growth of the CPP Reserve Fund is derived from the CPP contributions of working Canadians, and the return on investment of the contributions. The portion of CPP Reserve Fund growth due to CPP contributions varies from year to year, but have shown a slight decrease in the past 3 years. The historical growth with the investment performance is tabulated as follows:

Date	Net Asset Value (CAD)	Investment Performance
Mar 2003	$55.6 Billion	-1.1%
Mar 2004	$70.5 Billion	+10.3%
Aug 2005	$87 Billion	+3.6%
May 2006	$98 Billion	+15.5%

Quebec is the only province in Canada who have opted out of having its workers participate in the CPP. The Quebec Pension Plan, or QPP, is the province of Quebec's own version of the Canada Pension Plan. Almost mirroring the CPP exactly, 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 government tax benefits paid from the QPP.

• The Régie des rentes website

1. ^ Actuarial Report (22nd) supplementing the Actuarial Report on the Canada Pension Plan, As at 31 December 2003. Office of the Superintendent of Financial Institutions Canada. Accessed on 5 December 2006.

• Canada Pension Plan Act
• cra-arc.gc.ca - CPP and payroll calculations
• CPP Investment Board website
• CPP website
• 22nd Actuarial Report (as at December 31, 2003)