Annual report of the Canada Pension Plan for fiscal year 2019 to 2020

Contributions

The CPP is financed through mandatory contributions from employees, employers and people who are self‑employed, and through the revenue earned on CPP investments. Workers start contributing to the Plan at age 18.^{Footnote 3} As shown in table 1, the first $3,500 of annual earnings is exempt from contributions. Contributions are then made on earnings between $3,500 and $58,700, which is the earnings ceiling for 2020.

As of January 1, 2020, employees contribute at a rate of 5.25% (4.95% to the base CPP and 0.3% to the CPP enhancement), and employers match that with equal contributions. Self‑employed individuals contribute at the combined rate for employees and employers of 10.5% (9.9% to the base and 0.6% to the enhancement) on net business income, after expenses.

While many Canadians associate the CPP with retirement pensions, the CPP also provides disability, death, survivor, children’s and post‑retirement benefits. The CPP administers the largest long‑term disability plan in Canada. It pays monthly benefits to eligible contributors with a disability and to their dependent children.

Most benefit calculations are based on how much and for how long a contributor has paid into the CPP and at what age they begin to receive their pension. Generally, benefits are not paid automatically, everyone must apply. However, there are 2 exceptions:

• as of 2020, eligible seniors who have not yet started to collect their CPP retirement pension are proactively enrolled at age 70
• post-retirement benefits begin automatically the year after a worker made post-retirement contributions

Retirement pensions

The monthly retirement pension is the CPP’s primary benefit. To begin receiving a retirement pension, the applicant must have made at least 1 valid contribution to the Plan and must have reached the age of 60. The amount of the contributors’ retirement pensions depends on how much and for how long they have contributed and at what age they begin to receive their pension.

In the fiscal year ending March 31, 2020, the CPP paid a total of $38.2 billion^{Footnote 5} in retirement pensions to 5.4 million pensioners. In January 2020, the maximum monthly retirement pension at age 65 was $1,175.83. The average monthly payment in fiscal year 2019 to 2020 was $594.99.

Adjustments for early and late receipt of a retirement pension

Canadians are living longer and healthier lives, and the transition from work to retirement is increasingly diverse. The CPP offers flexibility for older workers who are making the transition to retirement.

CPP contributors can choose when to start receiving their retirement pension based on their individual circumstances and needs. Contributors have the flexibility to take their retirement pension earlier or later than the standard age of 65. To ensure fair treatment of contributors and beneficiaries, people who take their retirement pension after age 65 receive a higher amount. This adjustment reflects the fact that these beneficiaries will, on average, make contributions to the CPP for a longer period of time but receive their benefits for a shorter period of time. Conversely, those who take their retirement pension before age 65 receive a reduced amount, reflecting the fact that they will, on average, make contributions to the CPP for a shorter period of time but receive their benefits for a longer period of time.

Retirement pension taken before age 65

For individuals who start receiving their retirement pension before age 65, the amount of their pension is permanently reduced by 0.6% per month. This means that a contributor who starts receiving a retirement pension at age 60 receives an annual retirement pension that is 36% less than if it were taken at age 65.

Retirement pension taken after age 65

For individuals who start receiving their retirement pension after age 65, the amount of their pension is permanently increased by 0.7% per month that they delay. This means that a contributor who delays receiving a retirement pension until age 70 receives an annual retirement pension that is 42% higher than if it were taken at age 65.

Because there is no additional financial advantage to waiting past age 70, as of 2020, individuals who have not yet applied for their retirement pension will be proactively enrolled when they reach that age.

Note: Numbers above have been rounded and calculated at the date the beneficiary turns the age referred to in the table (for example, at age 60 and 0 months).

Post-retirement benefits

The post‑retirement benefit allows CPP retirement pension beneficiaries who keep working to increase their retirement income by continuing to contribute to the CPP, even if they are already receiving the maximum CPP retirement pension.

For Canadians between the ages of 60 and 64 who receive a CPP or QPP retirement pension and work outside Quebec, CPP contributions toward the post‑retirement benefit are mandatory, while people between the ages of 65 and 70 who receive the retirement pension while working can choose whether to continue contributing. No contributions are made after age 70. Contributions toward a post‑retirement benefit determines eligibility toward the post-retirement disability benefit only.

For a working beneficiary, each year of contributions results in a post‑retirement benefit, which is payable the following year. This new post-retirement benefit is added to the individual’s total CPP amount, including any previously earned post‑retirement benefits. The amount of each post-retirement benefit increases annually with the cost of living and is payable until the death of the contributor.

In the fiscal year ending March 31, 2020, 1.5 million CPP retirement pensioners received a total of $683 million in post‑retirement benefits. The maximum monthly amount for a single post-retirement benefit at age 65 for 2020 was $29.40. The average monthly payment for a single post‑retirement benefit in fiscal year 2020 was $13.86. However, many individuals receive multiple post-retirement benefits based on multiple years of contributions, such that the average total post-retirement benefit amount received was $41.19.

Disability benefits

The CPP provides 3 disability benefits:

• the monthly CPP disability pension provided to working-age contributors with sufficient recent contributions who have a severe and prolonged disability
• the new post-retirement disability benefit provided to retirement pension recipients under the age of 65 who meet the same disability criteria
• a flat rate benefit provided to the dependent children of beneficiaries with disabilities

In the fiscal year ending March 31, 2020, a total of $4.6 billion in benefits was paid to 336,000 beneficiaries with disabilities and to 83,000 children of beneficiaries with disabilities. These benefits represented 9.4% of the total benefits paid out by the CPP in that year.

The disability pension includes a monthly flat rate, which was $505.79 in 2020. It also includes an earnings related portion that is equal to 75% of a retirement pension based on the individual’s contributions to the Plan before the onset of their disability. In 2020, the maximum disability pension was $1,387.66 per month. The average monthly payment in fiscal year 2020 was $943.34.

The post‑retirement disability benefit, introduced in 2019, is intended for CPP retirement pension beneficiaries found to have had a disability but not eligible for a disability pension due to being in receipt of a CPP retirement pension. Such individuals may receive the post-retirement disability benefit in addition to their retirement pension. The value of the post-retirement disability benefit amount is equal to the flat-rate component of the disability pension, which was $505.79 per month in 2020. A total of $17 million was paid in post-retirement disability benefits in fiscal year 2020.

The benefit paid to dependent children of beneficiaries with disabilities is a flat rate. In 2020, the amount was $255.03 per month. To be eligible, children must be under 18 years of age or under 25 and in full time attendance at school or university.

Survivor benefits

The CPP provides 3 survivor benefits:

• the monthly survivor’s pension
• the flat‑rate children’s benefit provided to the dependent children of deceased beneficiaries, and
• the one‑time, lump‑sum death benefit

In the fiscal year ending March 31, 2020, a total of $5.4 billion in survivor benefits were paid. These benefits represented 11% of the total benefits paid out by the CPP in that year.

Survivor’s pensions are paid to the surviving spouse or common‑law partner of a contributor who made sufficient contributions to the Plan. In fiscal year 2019 to 2020, 1.1 million survivors received an average monthly pension of $342.40. The benefit amount varies depending on a number of factors, including the contributions the deceased made to the Plan, the age of the surviving spouse or common‑law partner and whether the survivor also receives other CPP benefits. Prior to 2019, the survivor’s pensions paid to childless survivors under the age of 45 who were found not to have had a disability, were reduced based on the survivor’s age at the time of the contributor’s death, but that reduction no longer applies.

There are special rules used to combine the CPP survivor’s pension with either the retirement or disability pension resulting in a single combined benefit. The maximum survivor’s pension for people under age 65 was $638.28 per month in 2020. This included a flat‑rate portion of $197.34 and an earnings‑related portion, which is 37.5% of the deceased contributor’s retirement pension. The maximum monthly amount at age 65 and over was $705.50, consisting of 60% of the deceased contributor’s retirement pension.

The benefit paid to dependent children of deceased contributors is a flat‑rate. In 2020, the amount was $255.03 per month. In fiscal year 2019 to 2020, 62,000 children of deceased contributors received this benefit. To be eligible, children must be under 18 years of age or under 25 and in full‑time attendance at school or university.

The CPP death benefit is a lump‑sum payment provided to the estate of the contributor. Prior to 2019, the death benefit amounted to 6 times the amount of the deceased contributor’s monthly retirement pension, up to a maximum of $2,500. However, as of January 1, 2019, the value of the death benefit is no longer based on earnings but is a flat‑rate of $2,500. In fiscal year 2019 to 2020, the average death benefit payment was $2,483.05^{Footnote 6}.

Benefit summary

Find up-to-date information on Canada Pension Plan amounts, refer to the CPP and OAS quarterly reports.

*at age 65

General drop out provision

In the base component of the CPP, the general drop out provision helps to offset periods of low or no earnings due to unemployment, schooling or other reasons. Up to 17% of a person’s contributory period with the lowest earnings, representing a maximum of 8 years, can be dropped from the benefit calculation. This increases the benefit amount for most people.

Over 65 drop out provision

In the base component of the CPP, the over 65 drop out provision allows periods of relatively low earnings before age 65 to be replaced by higher earnings after age 65. It may help to increase the benefit amounts of individuals who continue to work and make CPP contributions after reaching age 65, but do not yet receive the CPP retirement pension.

Child-rearing provisions

In the base component of the CPP, the child-rearing drop out provision excludes from the calculation of benefits the periods during which contributors remained at home, or reduced their participation in the workforce, to care for children under the age of 7. Every month until the child reaches 7 years of age can be excluded from the benefit calculation for a contributor who is eligible for this provision. In addition to increasing the amount of benefits, this provision may also assist people applying for survivor or disability benefits in meeting the contributory requirements for eligibility.

In the enhanced component of the CPP, the child-rearing drop‑in provision will provide credits to the parents of young children who remained at home or reduced their participation in the labour force to care for children under the age of 7. Specifically, a credit is provided (or dropped in) for every year in which the parent provides care for a child under 7 years of age, if this credit is higher than the parent’s actual earnings in that year. The value of the credit is based on the parent’s earnings in the 5 years before the birth or adoption of the child. These dropped in credits will increase the parent’s average earnings, which will increase the value of the enhanced component of their CPP benefits.

Disability exclusion and disability drop‑in

In the base component of the CPP, periods during which individuals are disabled in accordance with the CPP legislation are not included in their contributory period. This ensures that individuals who are not able to pursue any substantial gainful work are not penalized.

In the enhanced component of the CPP, individuals who develop a disability in 2019 or later will have a credit “dropped in” for the months that they have a disability in accordance with the CPP legislation. The value of the credit is based on the individual’s earnings in the 6 years before they develop a disability. These credits will be used to calculate the individual’s retirement pension or any subsequent survivor’s pension.

Pension sharing

Pension sharing allows spouses or common‑law partners who are together and receiving their CPP retirement pensions to share a portion of each other’s pensions. This feature also allows 1 pension to be shared between them even if only 1 person has contributed to the Plan. The amount that is shared depends on the time the couple has lived together and their joint CPP contributory period. Pension sharing affords a measure of financial protection to the lower‑earning spouse or common‑law partner. Also, while it does not increase or decrease the overall pension amount paid, it may result in tax savings. Each person is responsible for any income tax that may be payable on the pension amount they receive.

Credit splitting

When a marriage or common‑law relationship ends, the CPP credits accumulated by the couple during the time they lived together can be divided equally between them, if requested by or on behalf of either spouse or common‑law partner. This is called “credit splitting.” Credits can be split even if only 1 partner contributed to the Plan. Credit splitting may increase the amount of CPP benefits payable, or even create eligibility for benefits. It may also reduce the amount of benefits for 1 of the former partners. Credit splitting permanently alters the record of earnings, even after the death of a former spouse or common‑law partner.

Portability

No matter how many times workers change jobs, and no matter in which province they work, CPP and QPP coverage is uninterrupted.

Indexation

CPP payments are indexed to the cost of living. Benefit amounts are adjusted in January of each year to reflect increases in the Consumer Price Index published by Statistics Canada. As CPP beneficiaries age, the value of their CPP benefit is protected against inflation.

Contributions under the CPP enhancement

The enhancement’s implementation began its 7-year phase-in in 2019. The changes to contributions are indicated in figure 4 and include the following key elements:

• the CPP contribution rate that is applied to the current eligible earnings range (from $3,500 to the upper limit, which is set at $58,700 in 2020) will increase by 2 percentage points compared to the base CPP. This means the contribution rate will gradually increase to 11.9% by 2023 (shared equally by employers and employees, while self‑employed individuals contribute at the full rate)
• in 2024, workers will begin contributing on an additional range of earnings. This range will start at the current earnings limit, called the year’s maximum pensionable earnings, and will extend to a new limit that is 14% higher by 2025, phased-in over 2 years. The contribution rate on earnings in this new range will be 8% (shared equally by employers and employees, with self‑employed individuals contributing at the full rate)

Figure 4 – Text version

Figure 4 is a visual illustration of the 2-step phase-in of the contributions for the CPP enhancement, and how the increased contributions interacts with the base CPP. The first step will gradually increase the contribution rate by 2% over 5 years, from 2019 to 2023, on the same earnings covered by the base CPP. When fully phased-in, this will result in a combined contribution rate of 11.9% on these earnings. The second step will introduce a new contribution rate of 8% on earnings above the YMPE, up to 114% of the YMPE. This new range will be phased-in over 2 years, in 2024 and 2025.

* Office of the Chief Actuary projection

Find more information on the CPP enhancement.

Processing benefits

Service Canada continues to deliver the CPP through a network of 10 processing centres located across the country. In fiscal year 2019 to 2020, Service Canada:

• processed over 7.7 million transactions, including 1.7 million transactions to put clients into pay for the first time and to renew benefits, and another 6 million benefit adjustments or account revisions
• made over 71 million payments valued at $48.9 billion to 6.1 million beneficiaries, including $4.6 billion to 419,000 CPP disability beneficiaries
• supported 149,000 Canadians to apply for CPP retirement benefits online and fully automated the adjudication of 980,000 new post‑retirement benefits
• answered 2.4 million CPP and Old Age Security enquiries through its specialized call centre agents and resolved 2.9 million calls through its interactive voice response system

The timely payment of CPP benefits remains a priority. Overall, Service Canada aims to pay eligible clients their CPP retirement pension within their first month of entitlement with an objective of achieving this 90% of the time. In fiscal year 2019 to 2020, the Department exceeded this objective and put 97% of clients in pay for their first month of entitlement (consult table 5).

The Department continues to be committed to enhancing the delivery of the Canada Pension Plan disability benefits, particularly for people with a terminal illness or grave condition. In January 2020, it launched the CPP Disability online application through My Service Canada Account, which shortens the application process and improves understanding of eligibility. The Department also streamlined the paper application based on a more client-centric design, reducing the application from 40 to 15 pages. In March 2019, an interactive and printable CPP Disability Toolkit was introduced, to assist applicants, as well as third party organizations and medical health professionals who help clients with their application to CPP Disability benefits.

Funding approach

When it was introduced in 1966, the (base) CPP was designed as a pay‑as‑you‑go plan with a small reserve. This meant that the benefits for one generation would be paid largely from the contributions of later generations. This approach made sense under the demographic and economic circumstances of the time, due to the rapid growth in wages and labour force participation as well as the low rates of return on investments. However, demographic and economic developments, as well as changes to benefits and an increase in disability claims in the following 3 decades, resulted in significantly higher costs. Starting in the mid‑1980s, the finances of the CPP came under increasing pressure as assets declined and increases in contribution rates became necessary. In 1993, it was projected that the pay‑as‑you‑go rate would be 14.2% by 2030 and that the reserve fund would be depleted by 2015. Continuing to finance the CPP on a pay‑as‑you‑go basis would have meant imposing a heavy financial burden on the future Canadian workforce. This was deemed unacceptable by the federal and provincial governments.

Amendments were therefore made in 1997 to gradually raise the level of CPP funding. Changes were implemented to: increase the contribution rates over the short term; reduce the growth of benefits over the long term; and invest cash flows not needed to pay benefits in the financial markets through the CPP Investment Board in order to achieve higher rates of return. A further amendment was included to ensure that any increase in benefits or new benefits provided under the CPP would be fully funded.

The reform package agreed to by the federal and provincial governments in 1997 included:

• the introduction of steady‑state funding: this replaced pay‑as‑you‑go financing to build a reserve of assets and stabilize the ratio of assets to expenditures over time. Steady‑state funding is based on a constant contribution rate that finances the base CPP without the full‑funding requirement for increased or new benefits
• the introduction of full funding: this means that changes to the base CPP that increase or add new benefits are fully funded. In other words, benefit costs are paid as benefits are earned, and any costs associated with benefits that are already earned but not paid for are amortized and paid for over a defined period of time, consistent with common actuarial practice

The sum of the steady‑state and full-funding rates is the minimum contribution rate required to fund the base CPP.

If, at any time, the base CPP minimum contribution rate is higher than the legislated contribution rate, and if the Ministers of Finance do not agree on a course of action, then automatic provisions in the CPP legislation would be triggered to sustain the base CPP. An increase in the legislated rate would be phased in over 3 years, and benefit indexation would be suspended until the following triennial review.

The dual funding objectives for the base CPP of steady state and full funding were introduced to improve fairness across generations. The move to steady‑state funding eases some of the contribution burden on future generations. Under full funding, each generation that receives benefit enrichments is more likely to pay for them in full and not pass on the cost to future generations.

In keeping with the dual funding nature of the Plan, the CPP enhancement is fully funded in order to ensure fairness across generations. The CPP enhancement is designed so that the additional contributions along with projected investment income will be sufficient to fully pay the projected benefits at the legislated first and second additional contribution rates.

Regulations concerning what happens if the CPP enhancement is not sustainable under the legislated additional contribution rates have been formulated in the Additional Canada Pension Plan Sustainability Regulations, which were pre‑published in the Canada Gazette.^{Footnote 7}

These new regulations will apply only in the event that the additional minimum contribution rates deviate to a certain extent and for a certain amount of time from their respective legislated rates and no action is taken by the Ministers of Finance to address the deviation. In such case, adjustments would be made to current and future benefits and possibly to the additional contribution rates.

The Additional Canada Pension Plan Sustainability Regulations have received the formal consent of at least two thirds of the provinces, representing at least two thirds of the population of all provinces. The regulations will come into force once the formal approval process at the federal level is completed.

CPP accounts

Two separate accounts, the CPP Account and the Additional CPP Account, have been established in the accounts of the Government of Canada to record the financial elements of the base CPP and the enhanced CPP respectively (such as contributions, interest, earned pensions and other benefits paid, as well as administrative expenditures). The CPP accounts also record the amounts transferred to, or received from, the Investment Board. Spending authority, as per sections 108(4) and 108.2(4) of the Canada Pension Plan, is limited to the CPP net assets, which includes both accounts. It is important to note, however, that funds cannot be transferred between accounts such that the base CPP will be wholly funded from the CPP Account, while the enhancement will be funded from the Additional CPP Account. The CPP assets are not part of the federal government’s revenues and expenditures.

In keeping with An Act to amend the Canada Pension Plan and the Canada Pension Plan Investment Board Act, which came into force on April 1, 2004, CPP Investments is responsible for investing the remaining funds after the CPP operational needs have been met. The CPP Accounts’ operating balances are managed by the Government of Canada.

CPP Investments

Created by an act of Parliament in 1997, the Canada Pension Plan Investment Board (CPPIB) is a professional investment management organization with a critical purpose: to help provide a foundation on which Canadians build financial security in retirement. The assets of the CPP not currently needed to pay pension, disability and survivor benefits are managed by the CPPIB, which since 2019 operates as CPP Investments.

The organization is accountable to Parliament and to Canada’s Ministers of Finance, however it is governed independently from the CPP and operates at arm’s length from governments. CPP Investments’ legislated mandate is to maximize investment returns without undue risk of loss. In doing so, it is required to act in the best interest of contributors and beneficiaries, and to take into account factors that may affect the funding of the CPP and its ability to meet its financial obligations.

CPP Investments headquarters is in Toronto with offices around the world.

Find more information on the CPP Investments’ mandate, governance structure and investment policy.

CPP assets and cash management

Pursuant to section 108.1 of the Canada Pension Plan and an administrative agreement between the CPP and CPP Investments, amounts not required to meet specified obligations of the CPP are transferred weekly to CPP Investments in order to gain a better return. The cash flow forecasts of the CPP determine the amount to be transferred to or from CPP Investments and these forecasts are updated regularly.

Employment and Social Development Canada continues to work closely with CPP Investments, various government departments and banks to coordinate these transfers and manage a tightly controlled process. A control framework is in place to ensure that the transfer process is followed correctly and that all controls are effective. For instance, ESDC obtains confirmation at all critical transfer points and can therefore monitor the cash flow from one point to the next.

CPP net assets

In fiscal year 2019 to 2020, the CPP Fund grew to $415.6 billion. The Government of Canada held $6.0 billion of these assets to meet CPP pensions, benefits and operating expenses obligations. The remaining $409.6 billion is managed by CPP Investments. In terms of net assets, the CPP Fund ranks as one of the world’s largest retirement funds.

For the 10‑year period ending March 31, 2020, the Fund held by CPP Investments had an annualized net nominal rate of return of 9.9%. Over that 10‑year period, CPP Investments has contributed $235.2 billion in cumulative net income to the Fund, after all CPP Investments’ costs.

Investing for our future

CPP Investments made the strategic decision in 2006 to move progressively away from largely index‑based investments towards the more active selection of investments in order to capitalize on its comparative advantages. CPP Investments benefits from the CPP Fund’s exceptionally long investment horizon, certainty of assets and scale. It has also developed a world‑class investment team, which is complemented with top‑tier external partners that support its internal capabilities. CPP Investments takes a disciplined, prudent, long‑term approach to managing the total portfolio.

In managing the Fund, CPP Investments pursues a diverse set of investment programs that stabilize performance and contribute to the long‑term sustainability of the Canada Pension Plan. CPP Investments ensures that the Fund has both asset and geographic diversification to make the Fund more resilient to single‑market volatility. In order to build a diversified portfolio of CPP assets, investments are made in public equities, private equities, real estate, infrastructure and fixed income instruments. The investments have become increasingly international, benefitting from positive global growth in the world’s largest investment markets, and fostering greater resiliency during periods of slow growth within specific regions.

CPP investment reporting

CPP Investments reports its financial performance on a quarterly and annual basis. Legislation requires CPP Investments to hold public meetings every 2 years in each province, excluding Quebec, which operates the separate Quebec Pension Plan.

The purpose of these meetings is for CPP Investments to present its most recent annual report and to provide the public with the opportunity to ask questions about the policies, operations and future plans of CPP Investments.

Operating expenses

CPP operating expenses of $2.0 billion in fiscal year 2019 to 2020 represent 4.09% of the $48.9 billion in benefits paid. Table 7 presents the CPP’s operating expenses for the last 2 years.

^*The operating expenses do not include the transaction costs and investment management fees since these are presented as part of net investment income (loss). For more details, refer to the “Canada Pension Plan consolidated statement of operations” and the financial statements of the CPP Investments annual report.

Overpayment of benefits

Consistent with its mandate to manage the CPP effectively, ESDC has procedures in place to detect benefit overpayments. During fiscal year 2019 to 2020, overpayments totalling $122 million were detected, $89 million in overpayments were recovered and debts of $28 million were forgiven. The above figures represent a net increase of $5 million in the accounts receivable for the year.