Email from Finance Minister Freeland and Rebuttle
On September 11, 2024, Finance Minister Freeland, after analyzing my eight years of research on the CPP at www.fixthecpp.ca, responded as follows:
Dear Ross Macnaughton:
Thank you for your correspondence of July 5, 2024, which was referred by the Office of the Prime Minister, the Right Honourable Justin Trudeau, to the Deputy Prime Minister and Minister of Finance, the Honourable Chrystia Freeland, regarding the Canada Pension Plan (CPP) Fund and Alberta’s announcement that it is considering whether to set up its own provincial pension plan and withdraw from the CPP. Please excuse the delay in replying.
The CPP is financed by employer and employee contributions and provides a “defined benefit” in retirement based on an individual’s contributory history. CPP assets are pooled together in a Fund managed by CPP Investments, which operates at arm’s length from federal and provincial governments. These contributions, along with the investment returns generated by the Fund, ensure that the promised level of benefits can be paid out to Canadian workers when they reach retirement. In addition to retirement benefits, the CPP also provides supplemental benefits for disabled workers, survivors of contributors and a one-time payment to the estate of a contributor upon their death.
The CPP was initially established as a pay-as-you-go plan with a small reserve fund worth about two years of benefits. At the time of the Plan’s inception, demographic and economic conditions were characterized by a younger population, rapid growth in wages and labour force participation, and low rates of return on investments. These conditions made prefunding the Plan unattractive and pay-as-you-go financing more appropriate. However, demographic and economic changes over time, such as lower birth rates, increased life expectancy and lower real wage growth, led to increasing Plan costs.
In 1997, Canada’s Ministers of Finance agreed to make changes to the Plan to gradually increase the level of CPP funding by increasing contribution rates, reducing the growth rate of benefits over the long-term, and investing net cash flows in private markets through CPP Investments to achieve higher rates of return. These changes improved the long-term financial viability of the Plan so that the CPP will be affordable and sustainable for future generations.
Without the 1997 reforms, the Chief Actuary of Canada projected that the CPP contributory rate would have needed to increase to more than 14 percent by 2030 to pay for benefits. However, because of these reforms, the Plan’s financial health is sound. This has been confirmed in each subsequent report issued by the Chief Actuary, including the most recent report on December 14, 2022, which concluded that the CPP is sustainable for the next 75 years at current contributory rates.
CPP Investments was created to invest CPP assets with a view to achieving maximum rates of return without undue risk of loss, while having regard for the factors that may affect the funding of the CPP. Over time, the role of CPP Investments has become increasingly important as assets grow rapidly with contributions to the Plan projected to exceed expenditures until the mid 2020s. After that, it is projected that an increasing proportion of investment income will be needed to meet expenditures, with net cash flows (contributions less expenditures) projected to be negative. Consequently, the large build-up in the CPP Fund is necessary to pay for the promised level of benefits, in particular to the large baby boom generation.
In addition, it is important to maintain a certain buffer in the CPP Fund to protect against sudden and unexpected negative shocks to the global economy, such as a collapse of oil prices, a financial crisis or the impact of a global pandemic on the world economy.
The CPP legislation provides a framework for a province, such as Alberta, to establish their own comprehensive pension plan if a series of conditions are met, consistent with constitutional provisions that allow provinces to enact legislation providing for pension benefits. These conditions include a three-year written notice from the province, the passage of comparable legislation by the province, and the assumption of all the obligations and liabilities for CPP benefits due to employment or self-employment in that province (even for individuals who no longer reside in that province).
Notwithstanding this legislative framework, there are several details that would need to be sorted before a province leaves the CPP, including the calculation and transfer of existing pension liabilities as well as the calculation and transfer of pension assets related to those liabilities. This needs to consider that many people migrate to and from provinces in the pursuit of work, or to retire.
Albertans do not overcontribute to the CPP. Workers in Alberta pay the same contribution rate as workers in other provinces, and beneficiaries in Alberta receive the same benefits as workers in other provinces. The Government of Alberta’s asset transfer estimate is based on a flawed interpretation of the existing legislation. The actuarial report it commissioned arrived at a number that would result in Alberta receiving 53 percent of CPP assets while only having 15 percent of the population of Canada (excluding Quebec). If the Government of Alberta’s methodology were used for other provinces, there would not be enough assets in the CPP for all provinces to exit.
It is important that Albertans, and all Canadians, have all the relevant facts before a decision is made. To that end, the Chief Actuary is being asked to provide her own independent advice on a reasonable interpretation of the provisions in the CPP legislation that govern the asset transfer amount that Alberta would receive if it were to exit the CPP. The Chief Actuary is striking an expert panel to advise her on this interpretation, with the expert panel’s conclusions informing the Chief Actuary’s future calculation of the asset transfer amount. The transfer of assets and liabilities needs to be fair for Albertans and other contributors to the CPP.
Exiting the CPP is a long and complex process that has never been done before. If Alberta were to set up its own pension plan, it would also have to staff and set up systems to collect contributions and deliver pension benefits. An agreement between Alberta, Quebec and the Government of Canada would need to be negotiated to ensure the portability of benefits between the plans to encourage labour mobility across the country to help fulfill the needs of employers. In addition, a provincial pension plan would not enjoy the same economies of scale, pooling of risk, and investment advantage available through the CPP. Alberta would also need to negotiate international social security agreements to ensure similar treatment of contributors who spend part of their careers abroad. Quebec has negotiated their own social security agreements with about 40 countries compared to the 60 negotiated by Canada.
Thank you for writing.
Sincerely,
C. da Silva
Manager
Communications and Public Affairs Branch
On September 14, 2024, I responded as follows:
Dear C. da Silva,
Thank you for your detailed and insightful response regarding the Canada Pension Plan (CPP). It’s clear that you possess substantial knowledge on the subject. However, based on my eight years of research as a professor emeritus, I’d like to provide additional information that may not be as widely recognized.
In the 25th Actuarial Report from 2010, our Chief Actuary stated on page 33 that for the CPP to be deemed "sustainable," the fund should have a value of $329 billion by January 1, 2024.
However, as of that date, the actual value of the Base CPP fund stood at approximately $600 billion—almost double the required amount. This means the CPP currently holds an undeniable surplus of nearly $300 billion. Therefore, your assertion that the CPP is "sustainable" is a grotesque understatement. The Liberal government’s failure to acknowledge this surplus is depriving struggling millions of Canadians of hundreds of billions of deserved dollars that could be distributed, at no risk to future pensions.
You may wonder why I reference a report from 14 years ago. After 2010, when our Chief Actuary discovered that CPP Investments' success could potentially reduce profits for both the actuarial and financial industries, my research suggests that all subsequent actuarial reports are flawed. For instance, despite an average 10% return over the past 12 years, our Chief Actuary has lowered his projected investment return from 6.3% in 2010 to the current 5.9%. Pension experts agree that you must use the most accurate estimate of future returns to maintain generational equity—the supposed goal of all pension fund managers.
Is generational equity being upheld by the CPP? Absolutely not. Around 100,000 low-income seniors will die this year without receiving their rightful $10,000 surplus payment—money that could have extended their lives and improved their quality of life. CPP Investments created this surplus using their funds, and standard pension practice calls for a distribution of this surplus. What a disgrace!
One top Canadian actuary recently stated,
“Our Chief Actuary has done what pension actuaries frequently do - invent measures that are easily manipulated so that actuaries can control the narrative and hide things at will...I must remain anonymous because I am not allowed to criticize my fellow actuaries.”
You mentioned that demographic and economic shifts, such as lower birth rates, increased life expectancy, and slower real wage growth, have increased the plan's costs. In reality, the opposite is true. These variables are reflected in the Net Cash Flow column above. To illustrate, I reviewed the 31st Actuarial Report from 2022 and compared the actual values to the predictions made in the 2010 report. Over this period, the CPP has accumulated a $47 billion Net Cash Flow surplus—far above what the Chief Actuary projected would be required to sustain the fund.
Looking ahead, the outlook is even more optimistic. In 2010, the Chief Actuary projected a Net Cash Flow decline of $31 billion from 2026 to 2030. Twelve years later, this figure had been revised downward to just $10 billion. This revision indicates that factors such as lower birth rates and increased life expectancy have actually reduced—rather than increased—the projected costs of the plan.
In addition, the fund’s investment income has far exceeded expectations. Since 2010, it has averaged a 10% return, compared to the 6% return that the Chief Actuary had predicted would be necessary to sustain the fund. This higher-than-expected return has contributed significantly to the fund’s surplus.
In reality, the surplus is even greater than the $300 billion figure mentioned earlier. That calculation is based on the conservative assumption of a 6% return on investment from CPP Investments. If we were to project the fund’s surplus using the actual 10% return it has achieved over the past 14 years, the surplus would increase from 90% to 200%, equating to around $400 billion.
In pension management, it is generally recommended to distribute surplus funds once a fund achieves a surplus of just 25%. For comparison, when the Ryerson University Pension Plan reached a mere 18% surplus, the CRA ordered a distribution. My colleagues and I received as much as $20,000 each.
Lastly, please avoid suggesting that the CPP must transition from a pay-as-you-go model to a fully funded one. Unlike private companies such as Sears or Nortel, Canada will not face bankruptcy. The country will always have millions of workers and employers contributing to the plan, ensuring its long-term viability.
These figures show that the risk of distributing a portion of the CPP’s surplus—say, $200 billion—is virtually nonexistent. The benefits of such a move could be immense:
An average of $10,000 for 20 million Canadians,
A 20% boost to business profits,
A leap in Canada’s productivity, which is currently among the lowest in the G20,
A 3% increase in GDP,
More job creation,
Increased charitable donations,
A reduction in poverty,
A decrease in income inequality,
A $50 billion reduction in the federal deficit, thanks to higher income tax and HST revenues,
Enhanced quality of life and increased longevity for two million low-income seniors who could see their income rise by 40%, or $10,000,
Improved returns for CPP Investments by selling off underperforming assets, potentially increasing their overall return to 15%,
Numerous other positive outcomes.
There are even more profound benefits that could impact 99% of Canadians. If CPP Investments maintains its impressive 10.9% return, a 25-year-old Canadian could look forward to a $100,000 CPP pension in today's dollars. This would allow young people to disregard financial industry advice to save 15% of their income for retirement.
Imagine the peace of mind for young Canadians, knowing that a secure $100,000 CPP pension awaits them. Mental health issues are on the rise among Canadian youth, with many worried about retiring in poverty. This assurance of a comfortable retirement could alleviate much of their anxiety. In addition, young Canadians could redirect the 15% they currently save for retirement into spending or investing in other areas, giving them more disposable income today.
However, the financial industry would likely take a significant hit, losing billions in fees and seeing stock prices decline as young Canadians move away from private investment vehicles.
The actuarial industry would also suffer. If the CPP could provide everyone with a $100,000 pension, why would Canada need other pension funds and their accompanying actuaries?
To date, no actuary, economist, politician, or journalist has provided a valid reason to oppose distributing the CPP surplus. As Mr. Poilievre has noted, the CPP could help “rescue” our economy with almost zero risk.
Based on the evidence, many Canadians are concluding that for the past eight years, the Liberal government has inexplicably ignored this zero-risk opportunity to benefit 99% of the population and stimulate our sluggish economy. Experts on Canadian democracy often suggest that bribery is rampant in politics, and it’s hard to ignore the possibility that top officials are favoring the wealthiest 1%. Both Chrystia Freeland and Mark Carney have written books that criticize the capitalist system for being rigged in favor of the super-rich. Yet they seem to be doing little to help the remaining 99%.
Our CPP holds 10% of the lifetime earnings of most Canadians, yet no independent audits are conducted on the Chief Actuary’s work. The top ten actuaries who I have consulted have consistently denied the existence of a surplus, even though it is now nearing $300 billion. This failure to audit the Chief Actuary’s work—whether through the CRA, the Auditor General, or a Board of Governors—suggests a conflict of interest that deprives almost all Canadians of the benefits they deserve. A self-serving fox is guarding the henhouse that holds trillions of dollars of Canadians’ hard-earned savings.
By suppressing news of the CPP’s surplus, the financial industry continues to reap 47% of all Canadian corporate profits, at the expense of everyday citizens. It’s shameful that Canada’s private media won’t publish one of the most important stories in recent years. While politicians can’t dictate what privately owned media reports, Canadians should at least be able to rely on the CBC to bring these issues to light. Yet, despite my many submissions, the CBC has repeatedly refused to cover this story.
It’s only the Prime Minister who has the authority to direct the CBC to veto certain stories, which explains why Mr. Poilievre wants to defund the CBC—a sentiment many Canadians agree with. Instead of defunding, the CBC should be empowered to freely publish all newsworthy stories that private media selfishly censors.
This silence on such a crucial issue helps explain the Liberals’ plummeting popularity. Four years ago, Mr. Poilievre responded positively to my suggestions about the CPP surplus, calling it a “new and innovative idea to rescue our economy.” I have since shared his response and the details below with thousands of influential Canadians—including MPs, Senators, MPPs, municipal politicians, business councils, professors, media, charitable organizations, and many others. Many have forwarded this information, meaning that thousands more Canadians are now aware of the CPP’s surplus and the Liberals’ failure to address it.
As more Canadians learn about this issue, they are seeing a Prime Minister who, based on the overwhelming evidence, has chosen to veto a surplus distribution that could provide enormous benefits to the majority of citizens. His reasoning—that it is too risky—appears increasingly flimsy. Many are concluding that the Liberals have been complicit in a massive cover-up, involving the financial, actuarial, and media sectors. As a party that claims to champion the less fortunate, the Liberals seem to have instead protected the wealthiest 1%, while neglecting the needs of the other 99%.
One of my emails struck a chord with Premier Smith, likely prompting her to advocate for a rightful Canada-wide distribution of the CPP surplus, which you ultimately vetoed. Alberta has a legitimate claim to approximately $90 billion of the CPP fund. Around $50 billion is required to cover future CPP pensions and should definitely remain invested with CPP Investments. Premier Smith has proposed using the remaining $40 billion surplus for the following:
Providing seniors with up to $10,000 each,
Reducing employee and employer CPP contributions by $1,425 per worker annually,
Stimulating Alberta’s economy,
Supporting the rebuilding of Jasper,
And much more.
If Alberta were to receive these benefits, it would likely spark demands from millions of citizens in other provinces for similar treatment. By ignoring Premier Smith’s reasonable request for a national surplus distribution, not only are you denying Albertans these benefits, but Canadians across the country (with the exception of Quebec) may miss out on these opportunities for years to come.
Politically, you could probably secure a majority by simply pledging to give 20 million Canadians $10,000 each—especially alongside the other potential benefits. The influence of the financial industry in this matter seems substantial. Many Canadians are coming to the conclusion that the Liberals have essentially handed control of this issue over to the financial sector. Democracy on this critical topic feels absent. Instead of a government that works for the people, Canadians are left with:
"Government of the people, by the financial industry, for the financial industry."
From my research, Premier Smith stands out as one of the few senior Canadian politicians, aside from Mr. Poilievre, who appears resistant to undue influence. Unfortunately, her efforts were undermined by both Lifeworks, Canada’s largest actuarial firm, and a complicit media. Lifeworks ridiculously “calculated” that Alberta deserves 53% of the CPP fund, but the media twisted this figure, attributing it to Premier Smith and painting her as extreme, un-Canadian, and uncooperative, as shown below.
In your email, you incorrectly sided with the media by attributing the 53% claim to Premier Smith, rather than Lifeworks, the actual source. As both a Minister of Finance and a former journalist, you should be aware of this distinction. Additionally, you outlined various complex obstacles to Alberta receiving its fair share of the fund. Soon, Canadians will likely be asking:
"If there are no valid reasons to oppose a Canada-wide CPP surplus distribution (none were provided in your previous letter), why not move forward and deliver significant benefits to millions of Canadians and our sputtering economy?"
My colleagues and I have informed hundreds of influential Albertans about this distortion, which could result in their province losing out on the $40 billion CPP surplus payment they rightfully deserve. We will continue to distribute these details across Canada to thousands more influential Canadians, especially Albertans.
I respectfully suggest that the most effective way to regain political momentum, restore your public image, and secure victory in the next election is by leading a platform that advocates for a Canada-wide distribution of the CPP surplus. It’s crucial to take this initiative now, before Mr. Poilievre or Mr. Singh seizes the opportunity.
Below (at www.fixthecpp.ca) are the details that have been shared with thousands of influential Canadians.
Sincerely,
Ross Macnaughton
Professor emeritus
Ryerson University aka TMU
Why should Ross Macnaughton feel like Harry Markopolous did in 1999? In his book, No One Would Listen, Markopolous tells how it took him nine years warning investors that Bernie Madoff was running an elaborate Ponzi scheme before anyone would listen. After the scandal was revealed, The Guardian wrote
“A belatedly celebrated whistleblower who was ignored by everybody, Markopolos tried, umpteen times, to raise the alarm about Bernard Madoff's $65bn (£43bn) Ponzi scheme which imploded at the end of 2008, leaving thousands of charities, hedge funds, pensioners and Hollywood stars bereft of billions of dollars.”
Many of the Madoff victims were greedy investors who are guilty of not conducting due diligence. The victims of this CPP cover-up are 17 million innocent Canadians who never dreamed our “trusted” Chief Actuary would selfishly deprive them of a deserved $10,000 each.
For perspective, the Madoff scandal involved roughly $100 billion CDN. This CPP cover-up scandal involves $170 billion CDN. Moreover, Canadians and Canada are being deprived of huge ancillary benefits.
