Evidence of meeting #46 for Finance in the 45th Parliament, 1st session. (The original version is on Parliament’s site, as are the minutes.) The winning word was subamendment.
A recording is available from Parliament.
Liberal
The Chair Liberal Karina Gould
I call this meeting back to order. We are resuming.
Thank you for joining us. We're delighted to have some new faces with us.
Mr. Lawrence, you have the floor.
Conservative
Philip Lawrence Conservative Northumberland—Clarke, ON
Thank you, Chair.
We were talking about inflation versus nominal CPP assets. I believe I left off by asking for the officials. I believe he is here. My public apologies if I've caused him any grief. We have all been there, as parliamentarians, trying to log on desperately. Traffic in Ottawa can sometimes not be fun, either.
Thank you, sir, for appearing. I greatly appreciate it.
I was wondering if you'd be kind enough to share with us how the numbers for the CPP are currently shown in the most recent evaluation and then in the triennial. Specifically, I'm interested in whether they're presented in nominal dollars, inflation dollars or both.
Thank you very much, Mr. Stuart, if you'd be kind enough.
Justin Stuart Senior Director, Income Security, Department of Finance
Thank you for the question.
I'll start with the 32nd actuarial report, which was tabled on December 8, 2025. It shows an assessment and the financial health of the plan over the next 75 years. It confirms that the Canada Pension Plan is financially sustainable, with the minimum contribution rate set at about 70 basis points below the statutory rate of 9.9% for the base plan.
The 33rd actuarial report is a supplemental report to the 32nd actuarial report. It is based on the same general assumptions as the 32nd actuarial report. The only difference is that it reflects the proposed change in Bill C-30, which was done pursuant to the existing legislation in the Canada Pension Plan, section 115.
In terms of the report, regarding nominal versus real, I'll just say that the chief actuary, in fulfilling the report, follows actuarial principles in analyzing the financial health of the plan. There are inflation assumptions built into the numbers for benefits, contributions, growth of employee earnings, the increase in employment earnings, where it's forecasted to go, and how that feeds into contributions and benefits paid out.
Conservative
Philip Lawrence Conservative Northumberland—Clarke, ON
Correct me if I'm wrong. The projected rate of return on CPP is 4.05%. That's inflation adjusted or in real terms. Is that correct?
Senior Director, Income Security, Department of Finance
That would be correct. That's the real rate of return assumption built into the 32nd actuarial report, which is also embedded as part of the 33rd actuarial report.
Senior Director, Income Security, Department of Finance
It's the forecasted real return rate assumption used over the next 75 years to calculate whether the plan is financially sustainable.
Conservative
Philip Lawrence Conservative Northumberland—Clarke, ON
This might come off a little convoluted, but do you utilize a nominal rate? In other words, is there an assumed inflation rate? If the inflation rate, for example, was assumed to be 3%, would you actually believe that CPP should generate 7.05%?
If that's not the way you do it, please explain how you do it.
Senior Director, Income Security, Department of Finance
I can't explain exactly how the calculations are done, given that the calculations are done by the Office of the Chief Actuary, specifically the chief actuary of Canada. I don't have the complete 32nd actuarial report in front of me. I just have the summary, but I do believe that the assumed inflation rate over the next 75 years is 2%, or in that ballpark, which is based on the Bank of Canada and its inflation targeting practices.
Conservative
Philip Lawrence Conservative Northumberland—Clarke, ON
Thank you very much for sharing.
I think it's fair for everyone to know that there is an assumed rate of inflation. Obviously, if in fact that rate of inflation went up, that could go either way. There could be asset inflation, which would actually improve the performance of the CPP, which would make it more stable. However, a higher sustained rate of inflation could also perhaps make the CPP unsustainable if it's combined with other factors. I think it would be hard pressed for inflation alone to do that.
Can you comment on that? If you have anything to add, that's great, Mr. Stuart. If you don't, I understand.
Senior Director, Income Security, Department of Finance
I don't think I would have anything to add.
Conservative
Philip Lawrence Conservative Northumberland—Clarke, ON
No worries, and thank you very much, Mr. Stuart. I really appreciate your coming in.
As I said, you have my apologies again if I caused you any hassles this morning.
Conservative
Tamara Kronis Conservative Nanaimo—Ladysmith, BC
Thank you very much, Madam Chair.
I'd also like to ask some questions of the officials. I imagine my questions will be for Mr. Stuart.
Mr. Stuart, can you explain why projected CPP assets in nominal dollars alone might not give Canadians the full picture of the state of the Canada pension plan?
Senior Director, Income Security, Department of Finance
Thank you for the question.
I'll just say that the 33rd and 32nd actuarial reports do take into account inflation built in, whether it be to the average wage growth and how that's affecting contributions, given that contributions are tied to average employment earnings...and then benefits are tied to inflation as well. They are indexed annually to inflation. All of that is taken into account as part of the chief actuary's reporting.
Conservative
Tamara Kronis Conservative Nanaimo—Ladysmith, BC
Does the actuarial report lay out the assumptions that underlie the calculations in the report?
Senior Director, Income Security, Department of Finance
Indeed, the report is fairly thorough. It's a pretty long report. It's a couple of hundred pages long, if I'm not mistaken. I have full confidence in the chief actuary. All of the underpinnings of the assumptions and the scenarios are listed and included in the report.
Conservative
Tamara Kronis Conservative Nanaimo—Ladysmith, BC
I'm not trying to challenge that report in any way, shape or form, but just to be clear, when we talk about an amendment to be able to bring the information to the House, what we talk about is presenting it in a form that's digestible by parliamentarians and also in a form.... I believe the next subamendment we're going to talk about—which I will not ask any questions about right now, or expound on—talks about requiring the report to be written in plain English.
In plain English, can you explain what kinds of assumptions underlie the inflationary calculations in terms of the difference between the nominal and inflationary rates?
Senior Director, Income Security, Department of Finance
Again, my answer would be referring back to the 32nd and 33rd actuarial reports, which are based on a whole series of economic factors, demographic factors, just trends the chief actuary has seen as experience, and then building that into the reports and analysis, including on inflation.
Conservative
Tamara Kronis Conservative Nanaimo—Ladysmith, BC
I understand that you want to refer to the report, and I appreciate that. What I'm actually asking you to do is to explain that part of the report in plain English in this room.
Could you explain, for the benefit of the people who are watching at home and don't necessarily have the benefit of our expertise, how you take nominal rates and turn them into inflated rates, so that it would be simple? Is there a plain English section of the actuarial report that actually does that and that we could read?
Liberal
The Chair Liberal Karina Gould
Ms. Kronis, the report, as we've established a few times at this committee, is prepared by the chief actuary.
This is a departmental official. He didn't actually write the report but is here to provide technical answers on the report itself.
Conservative
Tamara Kronis Conservative Nanaimo—Ladysmith, BC
Just on that, I'm asking him to explain the concept of nominal numbers and inflationary numbers and talk about how we get from one to the other. He's actually referring back to the report. My questions are actually aimed not at talking about the report but at talking about the amendment and the subamendment.
Liberal
The Chair Liberal Karina Gould
Just so you know, Mr. Stuart, do your best to answer that question with the expertise you have, understanding that you're not one of the authors of the report.
Conservative
Tamara Kronis Conservative Nanaimo—Ladysmith, BC
Thank you for that clarification. I appreciate it.
I appreciate the opportunity to clarify that I'm not asking about the actuarial report. When I talk about a report, what we're discussing is the amendment we want to make, which—without reading it—suggests that the minister has to provide a report to the House within a specified period of time. One of the things we want that report to contain, because we think it is of use to Canadians, is the way that the nominal numbers are converted into inflation-adjusted numbers.
With your expertise in finance, distinct from your expertise in helping with or in reading reports, I'm hoping that you could explain how it is that we take nominal numbers for a pension plan and convert them into inflation-adjusted numbers.