Yes, the CPP will be there when Canadians retire.
That was one of CPPIB President and CEO
Mark Machin’s key messages at three Economic Club talks across Canada in
November. In recognition of Financial Literacy Month, he spoke in Ottawa,
Toronto and Vancouver, about the importance of CPP and CPPIB for Canadians’
retirement plans.
“You have a world-class retirement system
and a solid foundation in the CPP,” he says. “Canada, unlike virtually every
other industrialized country in the world, has solved its national pension
solvency issues.
”What’s more, says Machin, the CPP Fund can
withstand bad years, although he stressed that CPP alone was never intended to
provide for a full retirement.
Of concern to Machin is that too few
Canadians express confidence in the CPP, or know they have a world-class
investment institution working for their benefit. In fact, a 2016 CPPIB survey to
gauge Canadians’ understanding of the CPP finds:
- 64% of Canadians either don’t believe or don’t know if
the CPP will be there for them in retirement; and - Simultaneously, 42% of working-age Canadians expect to
rely to a great extent on the CPP when they retire – that figure is up from 13%
when CPPIB started tracking it 15 years ago.
That second statistic concerns Machin,
because the growing expectation of reliance on CPP suggests Canadians aren’t
entirely confident they can save adequately for their own retirements.
“If Canadians lack confidence and have low
knowledge of retirement planning,” he says, “the problem becomes too big; and
it becomes easier to ignore than to tackle.”
Pursuing CPPIB’s long-term objective of maximizing
returns without undue risk of loss means, “We anticipate short-term periods of
market volatility and lean-in during market downturns,” says Machin.
He adds that during the Global Financial
Crisis, the CPP Fund lost 18.8% in value in one year, but that just six years
later the CPP Fund’s investments gained 18.3% in one year alone.
If such losses occurred today, that would be slightly
over $60 billion, but Canadians should not fear that headline. “If we never
lost money,” he says, “we would not be taking enough risk to maximize the Fund
over generations.”
And the CPP Fund’s sustainability is not
in dispute.
Canada’s
Chief Actuary has certified that the CPP is sustainable over 75 years, assuming
a 3.9% real rate of return. CPPIB’s ten-year annualized real rate of return, a
timeframe which includes the global financial crisis, is 5.3%; and our
five-year annualized real rate of return is 10.3%.
“Today,
the Fund contains more than $325 billion strictly for the benefit of Canadian workers
and retirees,” says Machin, “CPP assets are held separate from government
coffers and cannot be touched.”
And,
soon, coverage offered by the CPP will increase.
From 2019 to 2025, the percentage of an average
worker’s salary replaced by CPP during retirement will gradually rise from
one-quarter to one-third. When fully in place, this CPP enhancement will
increase the maximum CPP retirement benefit by nearly $7,000 from the current
maximum benefit of $13,110 to nearly $20,000 in today’s dollars.
“Clearly
this is not enough to cover a full retirement,” says Machin. And yet, an
increase in the guaranteed pension benefit can help give Canadians greater
confidence in the CPP, and nudge them toward saving more to build on that
larger, and solid, foundation.