December 9, 1999
As joint stewards of the Canada Pension Plan (CPP), federal and provincial Ministers of Finance announced the conclusion of the first formal review of the financial state of the CPP since important changes to sustain the Plan were legislated, effective in 1998. These reviews are required every three years.
CPP Financially Sound
The actuarial report prepared for this review in December 1998 found that the CPP’s financial health is sound. These findings were supported in a peer review of the report by a panel of private sector actuaries. This confirms that the 9.9 per cent combined employer-employee contribution rate which will be reached in 2003 is expected to be sufficient to sustain the Plan in the face of an aging population. Finance Minister Martin stated: “Current evidence indicates that the changes we put in place two years ago will be sufficient to sustain the CPP. Canadians can rest assured that the CPP will continue to provide the retirement pensions and other CPP benefits that they depend on.” Ministers agreed to continue to work together to review further enhancements to the security and stability of the CPP. Division of Pension Credits The CPP currently provides for the splitting of CPP pension credits on divorce and separation. This ensures equitable sharing of CPP pension assets when a relationship breaks down. However, the take-up rate of these provisions is low. Ministers agreed to continue to examine the feasibility of improving credit splitting. To this end, Manitoba and the federal Departments of Finance and of Human Resources Development are exploring the possibility of a pilot project in that province. CPP Investment Policy To strengthen the Canada Pension Plan Investment Board’s independence and follow through on the policy framework agreed to when setting up the Board in 1997, it was agreed to allow the Board to invest actively up to 50 per cent of the assets it allocates to domestic equities. (Currently, domestic equities are invested in a manner which substantially replicates the composition of a broad market index.)
A further relaxation of this constraint will be considered by Ministers next year. In making this decision, Ministers expressed confidence in the Board’s directors and management and their plans to enhance investment returns and manage risks for CPP plan members through some active management of equity investments. Pre-payment option Ministers also agreed to provide provinces with an option to pre-pay some or all of their borrowings from the CPP at market prices, at no cost to the plan. This measure will assist provinces who are paying down their debts in an era of budget surpluses. Investment Board Ministers also agreed to strengthen the governance of the CPP Investment Board by balancing continuity and renewal in membership of the Board. Appointments of directors to the Board will be limited to a maximum of three terms. Terms are normally of three years’ duration. The Chair can serve a fourth term as a director. The Nominating Committee’s mandate will be expanded to include a review of the re-appointment of directors to the board in addition to its current duties to advise on new appointments. Actuarial Reports on the CPP Ministers endorsed plans to establish regular peer reviews of future actuarial reports on the CPP, and to consult regularly with experts on assumptions to be used in actuarial reports. Both these measures were recommended by the panel of actuaries which reviewed the latest actuarial report on the CPP. Actuarial Information and Services on the CPP A policy for supplying actuarial information and services on the CPP will be released for comment. The purpose is to standardize and bring transparency to existing practices whereby the Chief Actuary provides individuals or organisations with information and actuarial work related to the CPP. The document will be available on www.fin.gc.ca
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