The latest actuarial report on the Canada Pension Plan concludes that the current legislated contribution rate is sufficient to meet the CPP’s future obligations.

The report, which was tabled before Parliament on Monday, finds that the legislated contribution rate of 9.9% will mean total assets increase significantly over the next 11 years and then continue increasing beyond that, albeit at a slower pace.

Total assets are expected to grow from $127 billion at the end of 2009 to $275 billion by the end of 2020. The ratio of assets to the following year’s expenditures is projected to grow from 3.9 in 2010 to 4.7 by 2020 and 5.2 by 2050.

At that rate, “contributions are projected to be more than sufficient to cover the expenditures over the period 2011 to 2020,” the report finds. Beyond that horizon, some investment income will be required to make up the difference between contributions and expenditures, so that by 2050, 29% of investment income is required to pay for benefits.

The report says that a number of stress tests were conducted on the plan, including the possibility of a double dip recession in 2012. It finds that, under such a scenario, “The impact on the minimum contribution rate would be relatively small if it is assumed that only the unemployment rate and real-wage differential are affected. However, if another large investment loss occurs, then this could result in the minimum contribution rate exceeding the legislated rate of 9.9%.”

Also, if recent short-term improvements in life expectancies continue, especially for ages 75 to 89, the long-term assumptions will need to be adjusted accordingly, it notes, putting additional pressure on the minimum contribution rate that could cause the rate to increase above 9.9%.

IE