The C.D Howe Institute warns those advocating for expanding the CPP to not be fooled by the fund’s good returns and perceived sustainability. The CPP and the Quebec Pension Plan (QPP) are not guaranteed benefits; they are target benefits and need to be treated as such.

“Treat the CPP as a DB plan making firm promises, and it would need investment returns materially higher than those currently available on assets that match those obligations,” writes William Robson, president and CEO of the C.D. Howe Institute, in Don’t Double Down on CPP: Expansion Advocates Understate the Plan’s Risks.

“Projections using the yield actually available on the federal government’s real return bond show that, enlarged or not, the CPP cannot pay scheduled benefits at its current 9.9% contribution rate, and would instead need a contribution rate well above 11% to avoid benefit cuts. Expanding the CPP would raise the stakes on a bet that is different from, and riskier than, [what] most Canadians understand.”

The most recent actuarial report of the CPP shows that, based on the current funding arrangement, the fund is healthy and Canadians need not worry.

  • The number of contributors is expected to grow from 12.6 million in 2010 to 14.3 million by 2020.
  • Annual contributions are expected to increase from $37 billion in 2010 to $56 billion in 2020.
  • The proportion of retirement benefits relative to total expenditures is expected to increase from 72% in 2010 to 82% in 2050.

Robson says that these types of numbers fool people into thinking the fund is “fully funded” in the traditional sense of the word (the ability to pay it’s obligations with assets on hand). However, that is not the case. “The CPP is not, and is not designed to be, fully funded in this sense,” he writes.

He goes on to state, “In discussions of the CPP, ‘fully funded’ refers to the ability to pay existing promises or the enhanced benefits envisioned by big CPP advocates from a contribution rate (currently 9.9%) that will stay the same for more than seven decades. Critically, those projections depend on an assumption of a 4% net real return on the CPP’s investments—a number well above the yields currently available on sovereign-quality Canadian debt.

Rather than increase CPP benefits, Robson suggests alternative approaches to improving retirement prospects for Canadians including the following:

  • wider access to low-cost, professionally managed retirement income plans for those who don’t have a pension plan
  • more saving by individuals.

He admits that both options come with their own challenges, but reiterates “The CPP is a gamble, not a guarantee; doubling down means running the same risks on a larger scale.”

Copyright © 2020 Transcontinental Media G.P. Originally published on

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Concerned Pensioner:

How about more RSP flexibility options to blend with Pension Options? Voluntary Age expansion beyond 71, etc.

Friday, June 10 at 2:48 pm | Reply

Don Scott:

And our RRSP’s, future PRPP’s and DC plans are not a gamble? Get real. An indivuals risk with an enhanced CPP is minimal compared to going it alone or in a DC plan . The Howe’s study is targeted at erroding confidence in what is undoubatably one of the most secure pension funds in the world . More nonsense from the CD Howe drip tank.

Friday, June 10 at 3:24 pm | Reply

Brian Kenemy:

If this is the case, all things being equal, are government workers and politician’s pension (especially) subject to the same ups and downs?

Monday, June 13 at 7:50 am


I greatly dislike the CPP, however to suggest that the CPP is unsustainable because it targets a 4% real return and Canadian bonds do not offer that yield is comparing apples and oranges. The CPP invests in other things than Canadian debt.

The CPP is intergenerational theft, but the example given in the article is slanted and unreasonable.

Friday, June 10 at 4:03 pm | Reply

Andrew Block:

Most Canadians are not taking advantage of retirement savings opportunities. Lets fix the existing problems before creating more by expanding CPP. Discipline is necesary for many individuals to save and locking-in RSP’s, especially those with employer contributions would be a start.

Friday, June 10 at 4:12 pm | Reply

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