1. The Canadian Response to the Evolution of the Retirement Security Net
Presentation to the Northwind Professional Institute
Langdon Hall, Cambridge
27 October 2005

2. Presentation Mandate of the Office of the Chief Actuary
Canadian Income Retirement System
Canadian and Global Aging
CPP Steady-state Funding
Framework of an Efficient Retirement System

3. Canadian Retirement Security
Canadian retirement system with mixed funding approaches is well recognized in the world for its capacity to adapt rapidly to changing conditions.
- Full funding (RPP/RRSP)
- Partial funding (CPP/QPP)
- Pay-as-you-go funding (OAS/GIS)
123
The Canadian retirement system could be viewed as about 40% to 45% funded.

4. US Social Security: OASDI Salary as Multiple of Average Wage
Income Replacement Rate of Public Pension Plans (Canada and United States, 2002)
GIS
US Social Security: OASDI
Replacement Rate
OAS
CPP
Salary as Multiple of Average Wage

5. Purpose of the CPP Actuarial Report
Inform on the current and projected financial status of the Canada Pension Plan
Calculate the steady-state contribution rate

6. Assumption CPP Report 1.60 in 2016+
Fertility Rate
(Children per woman)
: 3.1
Assumption CPP Report 1.60 in 2016+
: 1.6

7. Assumption CPP report:
Net Migration Rate
1.4%
Avg : 0.49%
Avg : 0.58%
1.2%
1.0%
Assumption CPP report:
0.50% 2004 to 2015
0.54%
0.8%
0.6%
0.4%
0.2%
0.0%
1955
1965
1975
1985
1995
2005
2015
2025

8. Increase in Life Expectancies
Life expectancy at 65
Difference
More contributors are expected to reach the retirement age of 65.
Retirement beneficiaries are expected to receive their benefit for a longer period.

9. Canadian Aging Population 65 and over 12 25% Increase of 150%
(in millions)
Population 65 and over
(% of population) 12
25%
Increase of 150%
From 2005 to 2050 10
20% 8
15% 6
10% 4 5% 2 0%
1966
1976
1986
1996
2000
2010
2020
2030
2040
2050
Number
% of population
Increase of 250% for 80+

10. Global Aging
Projected number of years needed to go from 12% to 24% of 65 and over as a % the total population
30 years
40 years
25 years
60 years
65 years

11. Future Labour Shortage, likely or not?
Ratio of over 20-24
2003
150%
More people leaving than entering after 2015
125%
100%
For every 6 who leave, 10 enter
75%
50%
25%
1950
1960
1970
1980
1990
2000
2010
2020
2030
2040
2050
Canada
United States
Source for US : United Nations Projections, 2003

12. Working Age Population (ages 20-60) (indexed 2000=100)
130 US
120
110
Canada
100
100 90
France UK 80 70
Germany 60
Japan 50
Spain 40
Italy
2000
2005E
2010E
2015E
2020E
2025E
2030E
2035E
2040E
2045E
2050E
Source: UN World Population Prospects

13. Effect of the 1998 Amendments
How do we position for the aging of the Canadian population? : CPP Steady-State Funding
Effect of the 1998 Amendments
Increase the contribution rate by 65% over 6 years ( ) and keep the same rate thereafter
Moderate the future growth of benefits by 10% on a long-term basis (in 2050).
Creation of the CPP Investment Board to diversify the CPP reserve fund and increase investment returns (

14. CPP Steady-State Funding
Asset/Expenditure Ratio
9.9% Legislated contribution rate
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
2005
2015
2025
2035
2045
2055
2065
2075
9.8% Steady-state rate
In 2020, CPP/QPP assets are projected to be equal to 17% of the GDP.
(Ratio)

15. CPP Steady-State Funding
The current legislated contribution rate is 9.9%.
The steady-state contribution rate is 9.8%.
If the legislated contribution rate is higher than the steady-state rate, the funding status of the plan will increase over time.
The higher this rate is set above the steady-state rate, the faster the plan will become more funded.

16. CPP Steady-State Funding
If the steady-state rate is higher than the legislated contribution rate AND if finance ministers cannot reach agreement on a solution, then:
Contribution rate increased by ½ of excess over three years, subject to maximum increase of 0.2% per year
Benefits frozen
At end of three years, next review performed to determine financial status of Plan.

17. How do we position for the aging of the Canadian population?
Evolution of Old Age Security Expenditures in % of GDP
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
1990
2000
2010
2020
2030
2040
2050
2060
2070
2004
Between 2010 and 2030, the ratio of expenditures to GDP increases from 2.4% to 3.2%, driven largely by the retirement of the babyboomers.
$28 billion in 2004; $37 billion in 2010; $110 billion in 2030

18. Framework of an Efficient Retirement System
Diversification of sources of retirement income
Diversification of funding approaches
Reasonable economic cost of public pensions (% of GDP)
Reduction of poverty among seniors
Reduction of income inequalities
Maintenance of standard of living at retirement