Mr. Speaker, individuals are able to continue to contribute and defer the start of their Canada Pension Plan, or CPP, retirement pension in exchange for a higher monthly pension based on age of claim-related adjustments and this has been the case since 1987 when flexible retirement provisions were introduced to the CPP.
Under flexible retirement, while the standard age of eligibility for the retirement pension under the CPP is 65, individuals can choose to start collecting a permanently reduced pension as early as age 60, or to delay the start of their pension and receive an increased amount up to age 70.
These upward or downward adjustments to the pension amounts, referred to as actuarial adjustments, were put in place to ensure that, on average, the CPP’s aggregate financial health is not impacted by individual decisions of contributors as to when to start collecting the CPP retirement pension and, by extension, to ensure that no individual’s decision affects the benefits or contributions of other Canadians. The actuarial adjustment factors reflect the fact that those who start collecting their pension earlier will, on average, have made fewer contributions to the CPP and will also generally receive benefits for a longer period than those who begin receiving it later.
This means that, on average and in aggregate, there is no additional cost to the CPP for individuals who choose to defer their pension, nor is there a cost savings when individuals begin collecting their retirement pensions early.
From 1987 to 2011, the CPP’s actuarial adjustment factors were set at 0.5% per month the pension was started before, or after, age 65, up to a maximum adjustment of 30% to a claimant’s monthly retirement pension benefit. Individuals who collected their CPP retirement pension upon reaching age 60, as soon as they were eligible, had their pensions reduced by 30%, while pensions of those who waited until age 70 or later was increased 30%.
The actuarial adjustments factors were updated following the 2007-2009 Triennial Review of the CPP, after the Chief Actuary of Canada indicated that the old factors were no longer neutral as a result of a number of factors, including increases in life expectancies and the changing of the CPP’s financial model following the 1998 reforms that restored the Plan’s long term financial health. These updates were phased in over a number of years, from 2011 to 2016. Since that time, the adjustment factor for early retirement has been 0.6% per month, to a maximum reduction of 36% for those who begin their pension immediately at age 60. The adjustment factor for deferral is 0.7% per month of delay, to a maximum increase of 42% for those who begin their pension at age 70.
Further, to ensure that the adjustment factors remain neutral to the CPP’s finances, the 1998 CPP reforms also introduced a legislated requirement, in subsection 115 (1.11) of the Canada Pension Plan, that actuarial adjustment factors were to be reviewed on a periodic basis by the Office of the Chief Actuary. The legislation requires the Chief Actuary to re-calculate the actuarial adjustment factors and specify them at least once every nine years, coinciding with the standard Triennial Review of the CPP timelines. The review may be done more frequently if deemed necessary by the Chief Actuary.
The 27th CPP Actuarial Report at 31 December 2015, which was tabled in the House of Commons on 27 September 2016, confirmed that the current actuarial adjustment factors remain actuarially neutral. The full details of the analysis that led to that determination can be found in the Actuarial Study Canada Pension Plan Actuarial Adjustment Factors as specified in the 27th Actuarial Report on the Canada Pension as at 31 December 2015 – Actuarial Study No. 18, available at the following link: https://publications.gc.ca/collections/collection_2017/bsif-osfi/IN5-1-18-2017-eng.pdf.
The Actuarial Report (32nd) on the Canada Pension Plan at 31 December 2024, which is expected to be tabled in House of Commons in the fall of 2025, will confirm if the current factors remain appropriate and specify whether new factors are needed, based on most recent available projections of the Chief Actuary.
Statistics on the number of new CPP retirement pensions established by age, gender and by calendar year are published annually. Results observed from 1987 to 2024 for claims observed by age are available at the following link: https://open.canada.ca/data/en/dataset/ea075020-b9f4-43c4-8d04-075132cbbc7d/resource/c76328d2-d3f1-4daf-b101-719e5d081a26.