The good news is Canadians’ pension plans are safe for now, and indeed, well into the future..The not-so-good — but not exactly bad — news is the investing arm of the Canada Pension Plan barely held its head above water in its most recent fiscal year ended March 31. .That’s because CPP Investments eked a 1.3% return on assets during the period despite what its president and CEO John Graham called a “challenging year for investors and Canadians.” By comparison it has posted 10-year annualized net returns of 10%..In its annual report, the CPP blamed higher interest rates, inflation, the war in Ukraine and a broader decline in global equity markets for the relatively modest gains. Still, the value of the fund’s assets — those that aren’t being paid out as pensions — rose to $570 billion after expenses from $539 billion a year earlier..“We know these are difficult times,” Graham said in his annual statement. “Despite these events, the fund is holding steady. Our portfolio is solid and has kept the fund secure through the inevitable ups and downs investors experience during an economic cycle.”.By comparison, in 1999 the value of the CPP fund stood at just $36 billion sparking fears that it wouldn't be able to sustain itself. Now that figure is expected to top $1 trillion by 2031 and $3.6 trillion by 2050. . CPPThe CPP is expected to be sustainable for 75 years. .“About 20 years ago, there were concerns for the burden of provincial finances, notably in Québec, Saskatchewan and Newfoundland,” said Travis Shaw, senior VP of Global Sovereign Ratings at bond rating service DBRS Morningstar. “Unfunded obligations were quite significant, but with successive years and adjustments, their position has improved. Unfunded obligations are not a concern anymore.”.According to the federal Office of the Superintendent of Financial Institutions (OSFI), that means Canadians can rely on having their pensions for the next 75 years. That’s not when the fund is expected to end; it’s simply the minimum review period as set out in Ottawa’s CPP legislation..However, there is a recognition benefits paid will exceed contributions to the fund after 2025 as the population ages. Morningstar noted it may require higher contributions depending on whether the long term performance of the fund can be maintained. .Meanwhile, OSFI recognizes that reality can cause projections to go awry. If average returns, for example, came in at 4.2% instead of 5.79%, then the contribution rate would need to be hiked to 11.22%. However, if returns clock in at 7.39%, the effective contribution rate would be pushed down to 7.89%..It would also be potentially impacted by the Alberta election; the UCP has expressed plans to pull the province out of the CPP ala Quebec, while the NDP vowed to pass legislation to keep Alberta permanently in it. But given the positive overall financial position of the CPP, it’s not clear if there's the political will to pull out of it..Nonetheless, “both the CPP and the QPP (Quebec’s Pension Plan) now appear quite healthy,” it said..The fund has 21 million contributors and beneficiaries and actively manages Canadians’ payroll deductions, which are spread across 55 countries — about half of which are in the US and Canada. Asia is the next largest chunk, at 26% followed by Europe with 18% and Latin America at 6%..About a quarter of the assets are public equities — stocks — with 33% in private equities, 18% in infrastructure and real estate, with 13% and 12% in credit (ie bonds) and fixed income, respectively.
The good news is Canadians’ pension plans are safe for now, and indeed, well into the future..The not-so-good — but not exactly bad — news is the investing arm of the Canada Pension Plan barely held its head above water in its most recent fiscal year ended March 31. .That’s because CPP Investments eked a 1.3% return on assets during the period despite what its president and CEO John Graham called a “challenging year for investors and Canadians.” By comparison it has posted 10-year annualized net returns of 10%..In its annual report, the CPP blamed higher interest rates, inflation, the war in Ukraine and a broader decline in global equity markets for the relatively modest gains. Still, the value of the fund’s assets — those that aren’t being paid out as pensions — rose to $570 billion after expenses from $539 billion a year earlier..“We know these are difficult times,” Graham said in his annual statement. “Despite these events, the fund is holding steady. Our portfolio is solid and has kept the fund secure through the inevitable ups and downs investors experience during an economic cycle.”.By comparison, in 1999 the value of the CPP fund stood at just $36 billion sparking fears that it wouldn't be able to sustain itself. Now that figure is expected to top $1 trillion by 2031 and $3.6 trillion by 2050. . CPPThe CPP is expected to be sustainable for 75 years. .“About 20 years ago, there were concerns for the burden of provincial finances, notably in Québec, Saskatchewan and Newfoundland,” said Travis Shaw, senior VP of Global Sovereign Ratings at bond rating service DBRS Morningstar. “Unfunded obligations were quite significant, but with successive years and adjustments, their position has improved. Unfunded obligations are not a concern anymore.”.According to the federal Office of the Superintendent of Financial Institutions (OSFI), that means Canadians can rely on having their pensions for the next 75 years. That’s not when the fund is expected to end; it’s simply the minimum review period as set out in Ottawa’s CPP legislation..However, there is a recognition benefits paid will exceed contributions to the fund after 2025 as the population ages. Morningstar noted it may require higher contributions depending on whether the long term performance of the fund can be maintained. .Meanwhile, OSFI recognizes that reality can cause projections to go awry. If average returns, for example, came in at 4.2% instead of 5.79%, then the contribution rate would need to be hiked to 11.22%. However, if returns clock in at 7.39%, the effective contribution rate would be pushed down to 7.89%..It would also be potentially impacted by the Alberta election; the UCP has expressed plans to pull the province out of the CPP ala Quebec, while the NDP vowed to pass legislation to keep Alberta permanently in it. But given the positive overall financial position of the CPP, it’s not clear if there's the political will to pull out of it..Nonetheless, “both the CPP and the QPP (Quebec’s Pension Plan) now appear quite healthy,” it said..The fund has 21 million contributors and beneficiaries and actively manages Canadians’ payroll deductions, which are spread across 55 countries — about half of which are in the US and Canada. Asia is the next largest chunk, at 26% followed by Europe with 18% and Latin America at 6%..About a quarter of the assets are public equities — stocks — with 33% in private equities, 18% in infrastructure and real estate, with 13% and 12% in credit (ie bonds) and fixed income, respectively.
