John Graham, President and CEO, CPP Investments
We live in tumultuous times. Wars in Ukraine and the Middle East, a global pandemic, and rapid technological change have all challenged us in ways we couldn’t have imagined five years ago.
It can be easy to forget, given the speed of these disruptions, that one of our greatest challenges has been building slowly for generations.
“Demography is destiny” is a phrase often used to draw a foreboding link between population dynamics and a nation’s fate. In periods of uncertainty, demographics can also be a signal for what’s ahead and provide the visibility to prepare for the challenges we’ll face in the future.
In Canada, one of our most powerful tools to collectively shape that future is our strong, stable, resilient pension fund, one built for the specific demographic hurdles we’ll face as a country.
Indeed, patterns of aging suggest nations will face vastly different challenges in the years ahead. India, which overtook China last year as the world’s most populous nation, now has 1.4 billion people, 68 percent of whom are of working age (between 15 and 64). In sub-Saharan Africa, the working-age population is expected to increase by 740 million by 2050, more than doubling its current level, according to the World Bank.
In developed nations, decades of declining birth rates and rising life expectancies have put an opposite set of forces in motion. By 2030, 1.4 billion people across the globe will be aged 60 or older—a figure that will double by 2050, according to the World Health Organization. This trend is particularly powerful in nations like Japan, where 30 percent of the population is already in the 60-plus age group.
It’s also present in Canada, where by 2043, one in four Canadians will be over the age of 65—and where fewer people of working age will be there to support a growing retired population. In 1990, there were six people aged 15–64 for every one person over the age of 65. Today, there are 3.5 people of working age for every person over 65. The tighter this ratio gets, the more acute economic and fiscal strains will become.
In this landscape, countries with strong pension funds have a decided advantage—and Canada is among them. In the mid-1960s, the Canada Pension Plan (CPP) was introduced to address increased life expectancies and declining family support. But in the 1990s, when the federal and provincial governments realized that these changing demographics would materially impact what the CPP was on track to provide, several changes were made, notably the creation of the Canada Pension Plan Investment Board (CPP Investments).
For the past 25 years, our singular mission has remained clear—invest the CPP to achieve a rate of return high enough to help sustain pension payments for millions of people today and tomorrow. And in a time when other pension plans are struggling, our fund is among the world’s strongest. With a 10-year annualized rate of return of 10.9 percent from fiscal 2013 to 2022, CPP Investments ranked first among national pension funds (according to Global SWF).
Every three years, the chief actuary of Canada conducts a financial review of the CPP. Last year, the review concluded that the existing benefit levels are sustainable for 75 years.
What contributes to our long-term success? First, we operate at arms-length from federal and provincial governments using a platinum-grade governance framework. Second, we have a clear mandate: to maximize returns without undue risk of loss, while considering the factors that may affect the funding of the CPP. Third, we’re global, investing across all asset classes in most major markets. Finally, we think long-term. In a world where investment philosophies often veer from one quarter to the next, our highly qualified investors are trained to look decades ahead.
Demographics tells us there are significant challenges in the future. CPP Investments is proof that a bold promise to generations is achievable if we collectively shape it.
This article was originally published by The Milken Institute’s Power of Ideas collection.
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