On December 8, the chief actuary quietly tabled the 32nd Actuarial Report on the Canada Pension Plan (CPP) with no apparent media coverage. As is now tradition, the familiar refrain is that the CPP is financially sustainable for at least another 75 years. Politicians can breathe a sigh of relief, and the news cycle will move on.

But the comfort ends there. Behind that top-line finding lies a stark generational divide, evidenced by a pension system whose security for today’s retirees increasingly depends on transfers of wealth from younger workers.

While the CPP is sustainable, that sustainability rests on a very different deal for younger Canadians than their parents received—one built on higher contributions and a growing share of their premiums effectively going to cover past promises and unfunded liabilities rather than to build their own retirement security.

Contribution gap

To understand the intergenerational inequity, first consider the price of admission. When the CPP was established in 1966, the combined employer-employee contribution rate was set at just 3.6 percent, with a maximum dollar contribution of $158 (or $1,488 in today’s dollars). For decades, early participants paid these artificially low rates while accruing full benefits.

Today’s workforce faces a dramatically different calculus, with a compulsory contribution rate of 9.9 percent—almost triple the rate paid by early cohorts—or a maximum contribution for the base CPP of $6,712. On top of this, the “CPP Enhancement” adds a tiered tax of an additional 2 percent on earnings up to the standard ceiling ($1,356) and 8 percent on earnings above that to a higher threshold ($792). All told, someone who maxes out their CPP contributions this year contributes $8,860.

Shifting demographics

The report lays bare the demographic shifts driving the contribution increase. In the plan’s early years, there were more than seven workers contributing for every retiree drawing a pension. The burden on each worker was relatively light. The latest projections show that by 2050, the ratio of working-age Canadians to seniors will collapse to approximately 2.5 to 1.

Crucially, despite having a massive reserve fund, the base CPP operates primarily as a pay-as-you-go system where current workers’ contributions fund current retirees’ benefits, with investment income increasingly needed to bridge the growing gap over time.

In 2025, base CPP contributions (almost $73 billion) will exceed expenditures ($68 billion), generating a surplus that flows into the reserve fund. By 2031, contributions will no longer fully cover expenditures, requiring a small portion of investment income to make up the shortfall. By 2050, this gap grows, with approximately 12 percent of investment income needed to pay for expenditures.

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