The Canada Pension Plan is financially sound for at least the next half century at the currently legislated 9.9% contribution rate, according to the latest Actuarial Report on the CPP, which was tabled in parliament today by Minister of Finance Ralph Goodale.

The report found that this rate is sufficient to pay for future expenditures and to accumulate assets worth $147 billion (i.e. 4.4 times the annual expenditures) in 2010. In 2050, the assets are projected to be $1,554 billion or 6.3 times the annual expenditures.

Under the 9.9% legislated contribution rate, the assets are projected to grow rapidly over the next 17 years as contribution revenues are expected to exceed the expenditures over that period, the report notes. Assets will continue to grow until the end of the projection period, but at a slower pace, and the ratio of assets to the following year’s expenditures (asset/expenditure ratio) is expected to reach a level of 6.3 by 2050.

“These are indicators that the Plan is sustainable over the long term, as it is projected that there will be more cash inflows than outflows over the entire projection period. The pool of assets generated over the projection period provides the Plan with the capacity, through investment earnings, to absorb a wide range of unforeseen economic or demographic fluctuations, which otherwise would have to be reflected in the legislated contribution rate,” it says.

The report also finds that: the ratio of the number of people aged 20 to 64 to those aged 65 and over is expected to fall from about 4.9 in 2004 to 2.3 in 2050; the pay-as-you-go rate is expected to increase steadily from 8.3% in 2004 to 11.3% by 2050, mainly driven by the retirement of the baby boom generation; the steady-state contribution rate, which is the lowest rate sufficient to sustain the Plan without further increase, is 9.8% of contributory earnings; total assets are expected to grow from $68 billion at the end of 2003 to $147 billion by the end of 2010.

To measure the sensitivity of the long-term projected financial position of the CPP to changes in the future economic and demographic outlook, two demographically based scenarios that portray a generally younger and older population were developed. The younger and older population scenarios produced steady-state contribution rates of 9.3% and 10.3%, respectively.

The report also explains that contributions are more than sufficient to cover the expenditures until 2021. After that, a proportion of the investment earnings is required to make up the difference between contributions and expenditures. Investment earnings, which represent 14% of revenues (i.e. contributions and investment earnings) in 2004, will represent 27% in 2020. In 2050, investment earnings represent 32% of revenues. This clearly illustrates the importance of the investment earnings as a source of revenues to the Plan.

Chief Actuary Jean-Claude Ménard’s report will serve as the basis for federal and provincial finance ministers’ statutory three-year review of the Canada Pension Plan in 2005. In preparation for this review, the report will be reviewed by a panel of three well-respected independent actuaries, who will report publicly on their findings.