Office of the Superintendent of Financial Institutions

Office of the Superintendent of Financial Institutions

April 19, 2007 13:22 ET

OSFI: Study Finds Current Funding Approach for CPP Optimal

OTTAWA, ONTARIO--(CCNMatthews - April 19, 2007) - 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 (CPP) is robust and appropriate for the purpose of contributing to the long-term financial sustainability of the Plan.

"The current financing methodology helps to ensure that the CPP is affordable and sustainable for current and future generations of Canadians," says Canada's Chief Actuary Jean-Claude Menard.

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 that the credibility of the information presented in such reports is indisputable. The review panel recommended that the current financing methodology of the CPP be reviewed periodically to confirm that it remains optimal.

In undertaking the study, the Office of the Chief Actuary compared the funding schemes used to attain the goal of financial sustainability of retirement funds in several countries. There are 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 Plan from the pay-as-you-go basis to the partially funded, steady-state model used today. 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.

A copy of the study on the optimal funding can be found at: http://www.osfi-bsif.gc.ca/osfi/index_e.aspx?ArticleID=497

The Office of the Chief Actuary operates independently within the Office of the Superintendent of Financial Institutions (OSFI) and provides actuarial services for various key government plans and programs such as the Canada Pension Plan, Old Age Security Program, Canada Student Loans Program and pension and benefit plans that cover public servants, Members of Parliament, and the RCMP, among other groups.

Related documents:

Report of the CPP independent peer review panel: http://www.osfi-bsif.gc.ca/app/DocRepository/1/eng/media/nr_2005_05_09_e.pdf

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