Future productivity growth in Canada and implications for the Canada Pension Plan

The objective of this paper is to examine the implications of future productivity growth paths for the financial position and sustainability of the CPP. [...] With the CPI growing 0.46 per cent per year faster than the GDP deflator over the 10 The Actuarial Report notes that many factors have influenced the real rate of increase in average annual wages, including general productivity improvements, the move to a service economy, decreases in the average hours worked and fluctuation in the size of the workforce. [...] The Appendix to the 21st Actuarial Report of the CPP provides a sensitivity analysis of the impact of changes in the best-estimate (base case) assumed values of the key variables on CPP financial projections for the 2006-2075 period, both for the steady state contribution rate and for the asset/expenditure ratio assuming a 9.9 ultimate contribution rate. [...] The more persons in the labour force, the more persons who are working, and hence the greater the CPP contributions.19 In the low cost scenario the labour force participation rate is assumed to be 81 per cent for the population 15-69 in 2030, up from 73 per cent in the best-estimate scenario. [...] More rapid population growth increases the rate of growth in the number of earners more than the rate of growth in the number of CPP beneficiaries and hence has a positive effect on the CPP financial position.