An actuarial study published today by the Office of the Chief Actuary of Canada concludes that the current partial-funding model of the Canada Pension Plan is robust and appropriate for the purpose of contributing to the long-term financial sustainability of the plan.

The study compared the funding schemes used to attain the goal of financial sustainability of retirement funds in several countries. It looked at the three basic financing methods: pay-as-you-go, partial funding, and full funding.

The pay-as-you-go method uses the contributions of today to pay for the benefits of today. Under a fully funded scheme, total contributions paid by workers during their working lives are used to pay for their own benefits while, under a partially funded scheme, contributions by workers cover a portion of their future benefits.

Legislated reforms to the CPP in 1997 led to a change in the funding of the CPP from the pay-as-you-go basis to the partially funded, steady-state model. Steady-state funding ensures that the contribution rate is sufficient to ensure the long-term financial stability of the plan. The report concludes that the steady-state funding of the CPP is the optimal form of funding for the plan, and that the objective of pre-funding the plan should remain paramount. “The current financing methodology helps to ensure that the CPP is affordable and sustainable for current and future generations of Canadians,” says Chief Actuary Jean-Claude Ménard.

This study was undertaken on the recommendation of the CPP independent peer review panel. Independent peer reviews of actuarial reports on the CPP are conducted to ensure the credibility of the information presented in such reports. The review panel recommended that the current financing methodology of the CPP be reviewed periodically to confirm that it remains optimal.