Canada Pension Plan: surplus or shortfall?
If you’re an average Canadian, about 10% of your lifetime earnings has gone to the CPP. Roughly 5% has been deducted from almost every dollar you’ve earned, and your employer has matched this amount on your behalf. In total, the CPP has collected trillions of dollars from its 22 million members—16 million active contributors and six million pensioners.
Canadians trust that their CPP contributions are managed responsibly. But few know the true state of the fund. Is it in surplus or deficit? Will your pension be available when you retire? The answers might surprise you.
Canada’s Chief Actuary, who oversees the CPP, reported in 2010 that the fund was perfectly balanced. He stated that if CPP Investments (the organization investing the fund) achieved a 6% annual return, the CPP could meet all its pension commitments for 75 years.
Then, CPP Investments, now rated as the best pension fund manager in the world, consistently outperformed expectations, delivering an average 10% annual return since 2010. Today, the Base CPP fund likely holds about $650 billion—a staggering 85% more than the $347 billion the Chief Actuary said was needed to meet all pension obligations.
The surplus is even larger when you consider the likely future performance of CPP Investments. If the fund continues earning a likely 10% annually, only $225 billion is needed today to sustain pensions. This means the CPP has a $400 billion surplus, making it 278% funded.
When a pension fund is 125% funded, standard policy demands a surplus distribution. For instance, in 2000, when the Ryerson University Pension Plan was 118% funded, the Canada Revenue Agency (CRA) demanded a surplus distribution. All professors, including me, received as much as $20,000 each.
My numbers show that the CPP currently holds a $400 billion surplus, which, under standard pension practices, warrants distributing $200 billion to 20 million deserving Canadians—an average of $10,000 per person. The positive impacts on Canadians and the economy would be profound: increased GDP, enhanced productivity, higher business profits, greater charitable contributions, reduced poverty, and an estimated $50 billion deficit reduction.
Some senior political figures have already weighed in on this issue. Pierre Poilievre, in an email to me in 2020, described the idea of distributing the CPP surplus as “a new and innovative idea to rescue our economy.” Chrystia Freeland, on the other hand, dismissed the recommendation with vague arguments this past fall, claiming the $400 billion surplus is necessary as a safeguard in case CPP Investments underperforms.
Good governance is a cornerstone of effective pension fund management. Pension experts universally agree that every pension fund should have a Board of Governors responsible for decisions on surplus distributions or contribution increases. This Board should primarily consist of stakeholders, including contributors and pensioners—ordinary Canadians like you and me.
However, the CPP operates without a Board of Governors. Instead, all decision-making power rests with the Chief Actuary, who has unchecked authority over the fund.
Shockingly, I’ve found no indications that the CPP is audited by the CRA or the Auditor-General. You have the right to ask your Member of Parliament why 20 million Canadians are being denied their deserved surplus payout.
*Story submitted by Ross Macnaughton, a Ryerson professor emeritus who has studied the Canada Pension Plan for eight years.