How Canadians retire

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Have you ever wondered why you have a Social Insurance Number?

The Social Insurance Number (SIN) was actually introduced in 1964 to make it easier to administer unemployment benefits.

But the government soon found other uses for the numbering system that identifies individual Canadian residents and citizens: like making it simpler to administer Old Age Security payments and, later, Canada Pension Plan benefits.

The CPP (and its Quebec counterpart, QPP) was created in response to rising poverty rates among retired Canadians. The first payments from workers and their employers began going into the plan in 1966, and the first cheques to retirees and other beneficiaries were issued on January 1, 1967.

Upon retirement, CPP currently pays about 25% of an average Canadian worker’s annual salary. The plan is designed so that each generation of working Canadians helps fund retirement for current beneficiaries. Retirees can opt to begin receiving CPP between the ages of 60 and 70.

CPP is different from OAS in that it only goes to people who have paid in to the plan. CPP deductions are taken off an employee’s paycheque, and self-employed workers make their contributions directly.

Over time, the amount paid in by contributors has increased. In 1997, contributions were doubled to 9.9%, split between workers and their employers.

This happened because the number of retirees was growing and there were concerns that the money coming into CPP would soon be too little to pay benefits. At the time there were concerns CPP would one day run out of money, especially since the Baby Boomers – the largest generation to date in Canada’s history – were getting set to retire.

The 1997 reforms led to the creation of reserve funds, so the federal and provincial governments agreed to set up the CPP Investment Board (CPPIB) to invest money that wasn’t being used immediately to pay benefits.

CPPIB invests worldwide, and the Fund is now valued at more than $350 billion. According to the Chief Actuary of Canada, CPPIB’s work has helped ensure the CPP will be funded for at least 75 years.

Most recently, in 2016, federal and provincial governments introduced additional enhancements to expand CPP so that it will one day replace about 33% of average annual wages. To do that, it will raise how much working Canadians and their employers contribute each month by 2%.

These latest changes were sparked by concerns that fewer working Canadians had the benefit of workplace pension plans to supplement what they would get from government-run programs like CPP and OAS.

Millennials, members of Generation Z and those that come after, will likely benefit most from these reforms, which are designed to keep CPP front and centre to the way Canadians retire.


CPP Investment Board, Investing Today for Your Tomorrow.

The content on this site is provided for information purposes only. CPPIB is not a financial advisor, and the content on this site does not provide financial advice. Every person’s financial planning needs are different. For advice on how you should prepare financially for retirement, please consult a credentialed professional financial advisor.

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