Review of the 32nd Actuarial Report on the Canada Pension Plan

Conducted by the CPP Actuarial Review Panel

• Stephen J. Butterfield, FCIA
• Iyad Hourani, FCIA, FSA
• Michel St-Germain, FCIA, FSA

Table of contents

• Executive summary
• Section 1 - Introduction
  • 1.1 Terms of reference
  • 1.2 Procedures followed
  • 1.3 Statutory actuarial requirements
  • 1.4 Recommendations of the last review panel
  • 1.5 Purpose of CPP Actuarial Reports
  • 1.6 Main results of the 32nd Actuarial Report
    • 1.6.1 Base CPP
    • 1.6.2 Additional CPP
• Section 2 – Professional experience
  • 2.1 Background
  • 2.2 Observations
• Section 3 – Professional and statutory requirements
  • 3.1 Background
  • 3.2 Canadian Institute of Actuaries’ (CIA) – Rules of professional conduct
  • 3.3 Canadian Institute of Actuaries’ (CIA) – Standards of practice
    • 3.3.1 General standards of practice – part 1000
    • 3.3.2 Social security programs standards of practice – part 7000
  • 3.4 International Actuarial Association (IAA) financial analysis of social security programs International Standard of Actuarial Practice (ISAP) 2
  • 3.5 Canada Pension Plan statute
• Section 4 – Data
  • 4.1 Background
  • 4.2 Observations
• Section 5 – Actuarial methods
  • 5.1 Background
  • 5.2 Macro-simulation model
  • 5.3 Form of output
  • 5.4 Contribution rates – base CPP
    • 5.4.1 Pay-As-You-Go
    • 5.4.2 Minimum contribution rate
  • 5.5 Contribution rates – additional CPP
  • 5.6 Actuarial balance sheet
  • 5.7 Reconciliation with AR31
  • 5.8 Sensitivity testing and scenario analyses
• Section 6 – Assumptions
  • 6.1 Background
  • 6.2 Demographic assumptions
    • 6.2.1 Fertility
    • 6.2.2 Mortality
    • 6.2.3 Migration
      • 6.2.3.1 Immigration
      • 6.2.3.2 Emigration
      • 6.2.3.3 Non-Permanent Residents
      • 6.2.3.4 Interprovincial migration
  • 6.3 Economic assumptions
    • 6.3.1 Labour market / Employment / Number of earners
    • 6.3.2 Price increases
    • 6.3.3 Real wage increases
  • 6.4 Investment assumptions
    • 6.4.1 Assumed asset allocation
    • 6.4.2 Real rate of return on investments
    • 6.4.3 Investment expenses
  • 6.5 Other assumptions
    • 6.5.1 Benefit eligibility rates
    • 6.5.2 Average earnings related benefit
    • 6.5.3 Retirement pension take-up rates
    • 6.5.4 Benefit expenditures and post-retirement benefit expenditures
    • 6.5.5 Disability incidence and termination
    • 6.5.6 Survivor pension and mortality
    • 6.5.7 CPP operating expenses
  • 6.6 Assumptions in the aggregate and opinion thereon
• Section 7 – Gain (loss) analysis
• Section 8 – Sensitivity tests and scenario analyses
  • 8.1 Intervaluation investment experience
    • 8.1.1 Base CPP
    • 8.1.2 Additional CPP
  • 8.2 Sensitivity testing
    • 8.2.1 Fertility
    • 8.2.2 Mortality
    • 8.2.3 Migration
    • 8.2.4 Inflation
    • 8.2.5 Real wage increases
    • 8.2.6 75-year average real rate of return
    • 8.2.7 Disability
    • 8.2.8 Higher and lower economic growth
  • 8.3 Scenario analyses
    • 8.3.1 Change in earners / earnings distribution
    • 8.3.2 Acute economic event
    • 8.3.3 Climate change
  • 8.4 Additional general suggestion and comment
• Section 9 – Adjustment factors
• Section 10 – Communication of results
  • 10.1 Background
  • 10.2 Observations
• Appendix A
• Appendix B

Executive summary

Authors

This report was prepared by a review panel of three independent actuaries: Stephen Butterfield, Fellow of the Canadian Institute of Actuaries; Iyad Hourani, Fellow of the Canadian Institute of Actuaries and Fellow of the Society of Actuaries; and Michel St. Germain, Fellow of the Canadian Institute of Actuaries and Fellow of the Society of Actuaries.

Terms of reference

The panel conducted its review of the 32nd Actuarial Report on the Canada Pension Plan in accordance with the terms of reference, as follows:

In their report, the reviewers should include opinions on these questions and provide recommendations:

1. Is the professional experience of the Chief Actuary and the staff who worked on the report adequate for carrying out the work required?
2. Did the Chief Actuary complete the work in compliance with the relevant professional standards of practice and statutory requirements?
3. Did the Chief Actuary have access to the information required to perform the valuation? Were relevant tests and analysis on the data completed as might be expected?
4. Were the actuarial methods and assumptions used in completing the report reasonable?
5. Does the actuarial report communicate the results of the work performed by the Chief Actuary and their staff?

32nd actuarial report on the Canada Pension Plan (AR32)

AR32 was prepared as at December 31, 2024.

As stated in the report:

An important purpose of the report is to inform contributors and beneficiaries of the current and projected financial states of the base and additional CPP. The report provides information to evaluate the financial sustainability of the base and additional Plans over a long period, assuming that the legislation remains unchanged. Such information facilitates a better understanding of the financial states of the base and additional Plans and the factors that influence costs, and thus contributes to an informed public discussion of issues related to the finances of the two components of the CPP.

The main results included in AR32 are as follows:

• Base CPP: The Minimum Contribution Rate is 9.21% for the years 2028 to 2033 and 9.19% for the years 2034 and thereafter, which is lower than the current 9.9% legislated contribution rate.
• Additional CPP: The First Additional Minimum Contribution Rate is 2.01% which is slightly higher than the legislated first additional contribution rate of 2.0% and the Second Additional Minimum Contribution Rate is 8.04%, which is slightly higher than the legislated second additional contribution rate of 8.0%.

The report states the following with respect to the contribution rates:

The base minimum contribution rate is lower than the statutory contribution rate. Although the additional minimum contribution rates are above the statutory contribution rates, they fall within permitted deviations. The respective minimum contribution rates for the base and additional Plan are therefore sufficient to sustain them over the long term. In the absence of specific action by the federal and provincial Ministers of Finance, the statutory contribution rates will remain as scheduled.

There are other important metrics disclosed in AR32 either to satisfy mandatory disclosures or to assist the readers of the report in understanding the future viability of the CPP.

AR32 also presents the results of several sensitivity tests and scenario analyses that illustrate results if specific assumptions were varied in the future.

With the exception of the sensitivity tests and scenario analyses, all results represent the Chief Actuary’s current “best estimates”, with no margin for adverse deviations or other bias.

Finally, as required by legislation, the report provides updated adjustment factors for pension take-up ages other than age 65.

Opinions

With respect to the five questions included in the terms of reference, it is our opinion that:

1. The professional experience of the Chief Actuary and the staff who worked on AR32 was adequate for carrying out the work required.

2. The work on AR32 was completed in compliance with all relevant professional standards of practice and statutory requirements.

3. The Chief Actuary had access to the information required to perform the valuation and completed such relevant tests and analysis on the data as might be expected.

4. The actuarial methods used in completing AR32 were reasonable, and the assumptions were also reasonable, both individually and in the aggregate.

5. AR32 fairly communicated the results of the work performed by the Chief Actuary and their staff who worked on the actuarial report.

The remainder of this report provides and discusses the bases for these opinions, including corresponding observations and recommendations with respect to future actuarial reports.

Recommendations

We compliment the Chief Actuary and the staff of the Office of the Chief Actuary (OCA) who prepared AR32 on their competence, commitment and professionalism. They were very helpful in clarifying issues raised by the review panel and in providing additional information. In the spirit of seeking to help the Chief Actuary and their staff to continue improving their work, our report includes the following recommendations:

In addition to the recommendations outlined above, we also note that the report’s main body includes additional suggestions. Some of these suggestions focus on aspects that need monitoring or on potential fine-tuning of methods. Other suggestions could lead to providing the reader with further insight and information on potential risks the fund may face in the future. We are of the opinion that these suggestions, while not formal recommendations, are important and can be reviewed in detail within the full review report.

Section 1 – Introduction

This report presents the results of our review of the 32nd Actuarial Report on the Canada Pension Plan (AR32).

1.1 Terms of reference

In accordance with our terms of reference, our review focused on the actuarial work. We were not asked to, and did not, review the merits of the current design, administration or investment arrangements of the CPP. Our review of those aspects was confined to how they interact with, and are reflected in, the actuarial work.

The terms of reference for our review were as follows:

The peer reviewers will review the work performed by the Chief Actuary in completing the 32nd Actuarial Report on the Canada Pension Plan as at December 31,2024. Following their review, they will provide a report to the Chief Actuary and the UK Government Actuary’s Department (GAD). GAD will then provide its opinion of the peer review to the Chief Actuary.

In their report, the reviewers should include opinions on these questions and provide recommendations:

1. Is the professional experience of the Chief Actuary and the staff who worked on the report adequate for carrying out the work required?

2. Did the Chief Actuary complete the work in compliance with the relevant professional standards of practice and statutory requirements?

3. Did the Chief Actuary have access to the information required to perform the valuation? Were relevant tests and analysis on the data completed as might be expected?

4. Were the actuarial methods and assumptions used in completing the report reasonable?

5. Does the actuarial report communicate the results of the work performed by the Chief Actuary and their staff?

In providing opinions on the questions listed above, the peer reviewers must also provide such recommendations as they deem appropriate with respect to future actuarial reports on the Canada Pension Plan prepared by the Office of the Chief Actuary.

1.2 Procedures followed

Our review was conducted as a close collaboration of the three panel members. The review work took place over the months from November 2025 through April 2026.

We received AR32 on December 8, 2025, the day it was tabled in Parliament. We received the first set of working papers underlying the report on November 21, 2025. The OCA subsequently provided us with additional requested information.

We had a series of three on-line presentations from the OCA, as follows:

• November 27, 2025: CPP overview

• December 2, 2025: Data, model, assumptions and methods

• January 26, 2026: Valuation model

We had a preliminary on-line meeting with the Canada Pension Plan Investment Board (CPPIB) on January 21, 2026. A key part of this meeting was the review of a document explaining the development of the level of acceptable risk and the strategic portfolio.

We had three days of meetings in February 2026 with the Chief Actuary, members of the OCA, officials from the Economic Analysis and Forecasting Division of the Department of Finance Canada, representatives of the Demography Division of Statistics Canada and representatives of the Canada Pension Plan Investment Board (CPPIB). More documents were presented, including a Statistics Canada projection of the future population. In advance of these meetings, we submitted numerous questions / comments to the OCA. In addition, we asked numerous questions during our meetings, and some follow up questions after the meetings. All parties responded promptly and fully to each request we made or provided reasons if a response was not possible.

We also reviewed the following documents:

• PowerPoint presentations prepared by the OCA, providing information on:

  • The development of the methods and assumptions used in the valuation, including each of the demographic and economic assumptions;

  • The projections of the contributions, investment income and expenditures of the plan;

  • The financing methods reviewed in the valuation, including the main results and conclusions of the valuation;

  • The reconciliation of the results of the valuation compared to the previous valuation;

  • The rationale for the selection of sensitivity testing and scenario analyses and the results of such testing and analyses; and

  • The background for the development of the adjustment factors for early and deferred pension take-up ages.

• the 2025 Annual Report of the CPPIB;

• the actuarial valuation of the Québec Pension Plan as at December 31, 2024;

• The Rules of Professional Conduct and the applicable Standards of Practice of the Canadian Institute of Actuaries, and the International Standards of Actuarial Practice of the International Actuarial Association; and

• The key provisions of the statute establishing the CPP.

We held several meetings by teleconference and corresponded by email.

We agree on all the opinions and recommendations presented in this report.

In our work, we concentrated on what we consider to be the most important issues – the data used, the actuarial methods employed, the actuarial assumptions selected, the scenario testing and sensitivity analyses undertaken and the reporting. We reviewed the sources of the data, and the processes used by the OCA to test and analyze the data; however, our mandate did not include a detailed audit of the data. Similarly, we reviewed the procedures used by the OCA to test the actuarial computer models; however, our mandate did not include a verification of the accuracy of the models.

1.3 Statutory actuarial requirements

Section 115 of the Canada Pension Plan requires that an actuarial review be conducted once every three years and that a report is produced that:

• Regarding the base CPP:

  • Shows the projected pay-as-you-go contribution rates, that is, the contribution rates applicable for each year that develop expected contributions equal to that year’s expected expenditures; and

  • Determines the following contribution rates:

    • The contribution rate, calculated in a prescribed manner, that provides for steady-state funding of the base CPP, excluding post-1997 benefit improvements; and

    • The contribution rate, calculated in a prescribed manner, that provides for the full funding of post-1997 benefit improvements.

• Regarding the additional CPP:

  • A first additional minimum contribution rate (FAMCR), calculated in a prescribed manner, which provides for the funding of benefits provided under the additional CPP that are in respect of earnings below the YMPE; and

  • A second additional minimum contribution rate (SAMCR), calculated in a prescribed manner, which provides for the funding of benefits provided under the additional CPP that are in respect of earnings above the YMPE.

Section 113.1 of the Canada Pension Plan requires that a financial review of the CPP be prepared every three years after 1997 by the federal and provincial Ministers of Finance. This review is to take into account the most recent report of the Chief Actuary prepared in accordance with Section 115. Section 115 states that projections must extend for at least 75 years into the future.

Separate funding objectives are established for the base CPP and the additional CPP.

• The financing objective of the base CPP includes:
  • a steady-state contribution rate calculated as the lowest constant rate for which the projected ratio of assets-to-expenditures 10 years after the end of the review period matches the corresponding projected ratio 60 years after the end of the review period; and
  • a full funding rate for increased or new benefits for which the cost equals or exceeds 0.02% of contributory earnings (the “de minimis” rule).

• The minimum contribution rate for the base CPP is the sum of the steady-state contribution rate and full funding rate.

• The financing objective of the additional CPP is stated in terms of the First Additional Minimum Contribution Rate (FAMCR) and the Second Additional Minimum Contribution Rate (SAMCR) that must be determined before and after taking into account the full funding of any increased or new additional benefits. The FAMCR and SAMCR are defined as the lowest level contribution rates applicable after the end of the review period, such that the following conditions are met:
  • the present value of projected additional open group obligations is less than or equal to the projected additional assets and present value of projected additional contributions (open group assets);
  • the projected ratio of assets-to-expenditures of the additional CPP is the same in the 50th and 60th years following the end of the review period, but no earlier than in the years 2088 and 2098, respectively; and
  • the SAMCR is equal to 4 times the FAMCR.

Also, in accordance with subsection 115(1.11) of the Canada Pension Plan, in the first actuarial report prepared after 2015 and in every third report that follows, the Chief Actuary is required to specify the adjustment factors used to adjust the amount of pension when the first payment date is at an age other than age 65, as calculated according to a methodology that the Chief Actuary deems appropriate. AR32 is the third actuarial report prepared after 2015 and thus is required to include this information.

1.4 Recommendations of the last review panel

The actuarial review panel for AR31 made 17 recommendations arising from its review, plus numerous other observations or suggestions for improvement. Our terms of reference do not include a review of the prior recommendations and the actions taken thereupon. However, a summary of the recommendations and the actions taken was provided by the OCA and is included in the Appendix.

1.5 Purpose of CPP Actuarial Reports

The purpose of the report is to inform contributors and beneficiaries of the current and projected financial states of the base CPP and the additional CPP. The report provides information to evaluate the financial sustainability of the CPP over a long period, assuming that the legislation remains unchanged. This information facilitates a better understanding of the financial state of the CPP and the factors that influence costs; and thus contributes to an informed public discussion of issues related to the finances of the CPP.

In AR32, the financial performance of the CPP is measured through several key metrics, including:

• the projected pay-as-you-go contribution rates and asset to expenditure ratios by year to 2055 and then every fifth year through to 2100, under both the current legislated contribution rate and the MCR;
• the MCR of the base CPP and the FAMCR and the SAMCR of the additional CPP calculated at the current valuation date and how these rates are projected to evolve over the next four triennial valuation reports, assuming that actual experience matches the actuarial assumptions;
• a number of sensitivity tests and scenario analyses, which illustrate the results that would be obtained under various changes in either future experience or actuarial assumptions; and
• a balance sheet, showing estimates of the assets as a percentage of the liabilities under an open group approach as at December 31, 2024 and December 31, 2030.

The current MCR, FAMCR and SAMCR are the most significant of these results. If the MCR of the base CPP is higher than the legislated contribution rate, and the federal and provincial governments do not agree on a course of action, the insufficient rates provisions in Section 113.1 of the Canada Pension Plan will apply to automatically increase the contribution rate and freeze benefits. For the additional CPP, if FAMCR and SAMCR are outside of prescribed ranges around the legislated additional contribution rates, the Additional Canada Pension Plan Sustainability Regulations prescribe adjustments to additional benefits and legislated additional contribution rates.

The other results are also useful because they provide information regarding the long-term pattern of revenues and expenditures of the CPP and the variability of the different cash flows if the assumptions are changed or not realized. They also allow comparisons to be made with other countries’ social security programs.

It is essential to recognize that all the results are estimates. All but the sensitivity tests and scenario analyses represent the Chief Actuary’s “best estimates”, with no deliberate margin for adverse deviations or other bias. They present what the outcome will be if future experience exactly matches the actuarial assumptions. The assumptions apply for 75 years and are forecasts of uncertain future events and conditions and, therefore, are not amenable to precise prediction.

The estimates shown in AR32 are essential to provide guidance in financing the CPP and in performing other planning and management tasks, including the CPPIB’s development of the strategic portfolio. Yet, no matter how carefully they are prepared, they are still estimates. Thus, it is important that readers look at the sensitivity tests and scenario analyses to enhance their understanding that the range of possible actual outcomes is wide and could even be wider than illustrated by such sensitivity tests and scenario analyses.

1.6 Main results of the 32nd Actuarial Report

The main results included in AR32 are as follows:

1.6.1 Base CPP

• The MCR is 9.21% for the years 2028 to 2033 and 9.19% for the years 2034 and thereafter, down from 9.54% in AR31.
• Using these MCRs, the ratio of assets to expenditures is projected to increase slightly from 10.1 in 2028 to 10.9 in 2037 and to be about the same in 2087.
• The pay-as-you-go contribution rate increases from 9.3% of contributory earnings in 2025 to 13.9% in 2100.
• Under a continuation of the current 9.9% legislated contribution rate, the ratio of assets to expenditures is projected to increase slightly from 9.7 in 2025 to 10.4 in 2030, and to continue to grow thereafter to 14.1 in 2050 and 20.7 in 2100.
• The main reasons for the decrease in the MCR in the intervaluation period were better than expected investment experience and changes to the actuarial assumptions with respect to non-permanent residents offset by a reduction in the assumed fertility rate.

In aggregate, AR32 shows that the current funding requirements for the base CPP are expected to be more than sufficient to fund the future benefits of the base CPP. Actual experience will differ from the actuarial assumptions and future valuations will determine whether the extent of this experience is such that the base CPP benefits will continue to be adequately funded under the current funding requirements.

1.6.2 Additional CPP

• A FAMCR of 2.01% and a SAMCR of 8.04% for 2025 and thereafter, a small increase from the rates of 1.97% and 7.88% revealed in AR31.
• Under the legislated first additional contribution rate of 2.0% and the legislated second additional contribution rate of 8.0%, the ratio of assets to expenditures is projected to be 99.7 in 2025 and to gradually decrease to a level of 24 by 2085 and remain close to that level through 2100.
• There was no significant reason for the slight increases in the FAMCR and the SAMCR, but rather the increases were the result of numerous small experience items and changes in assumptions.

In aggregate, AR32 shows that the current funding requirements for the additional CPP fall within permitted deviations to fund the future benefits of the additional CPP. Actual experience will differ from the actuarial assumptions and future valuations will determine whether the extent of this experience is such that the additional CPP benefits will continue to be adequately funded under the current funding requirements.

Section 2 – Professional experience

In this Section we address the following question:

2.1 Background

AR32 as submitted by the Chief Actuary to the Minister of Finance, was tabled in Parliament on December 8, 2025. The Chief Actuary is Assia Billig, a Fellow of the Society of Actuaries (2004) and of the Canadian Institute of Actuaries (2005). Ms. Billig was appointed Chief Actuary within the OSFI in April 2019.

She joined the OCA in 2008, where she was involved in the preparation of statutory actuarial reports on the CPP and Old Age Security Program, as well as various national and international actuarial studies. Prior to joining the OCA, she worked in private pension consulting.

Ms. Billig was the vice-chair of the International Actuarial Association (IAA) Social Security Committee for a number of years and is the chair of the Technical Commission on Statistical, Actuarial and Financial Studies of the International Social Security Association. She completed her undergraduate studies in Moscow State University and has a PhD in Mathematics from the University of Alberta.

AR32 was co-signed by three Senior Actuaries in the OCA: Laurence Frappier, François Boulé and Christine Dunnigan. All three of these professionals are Fellows of the Society of Actuaries and Fellows of the Canadian Institute of Actuaries.

Ms. Billig, Ms. Frappier, Mr. Boulé and Ms. Dunnigan were assisted by a staff of actuaries, listed as follows.

2.2 Observations

There are very few actuaries working in Canada with experience in valuing social security programs like the CPP. The data sources, macroeconomic modelling, and range of assumptions involved in actuarial valuations of these social programs are more complex than for employer-sponsored pension plans. Therefore, occupational pension plan experience is useful but not as useful as previous experience with social programs similar to the CPP. All four signing actuaries have considerable experience and understanding of the issues involved in valuing pension plans, including social security pension plans similar to the CPP.

The staff of the OCA is of sufficient size to spend adequate amounts of time on CPP and related matters, such as improving methodologies and data sources, performing intervaluation studies, enhancing documentation, evaluating the cost of new benefits and liaising with other government departments and other social security actuaries, all of which contribute to the quality of the work and of the report.

It is not only important to have sufficient numbers of adequately trained staff but also to plan for the future. We understand from our discussions with Ms. Billig that there is a continued appropriate program of staff recruiting and succession planning in place. There is a mix of more experienced and relatively new personnel on the staff of the OCA. Staff continuity has been excellent. We also note that staff are moved from one technical area to another in their primary work and/or peer review work. Thus, staff are gaining in-depth knowledge of the entire workings of the CPP and applicable actuarial models.

We are satisfied that Ms. Billig and the staff who assisted her in preparing AR32 have the relevant experience and are qualified to carry out the actuarial valuation.

Opinion on Professional Experience

In our opinion, the professional experience of the Chief Actuary and their staff who worked on AR32 was adequate for carrying out the work required.

Section 3 – Professional and statutory requirements

In this Section, we address the following question:

3.1 Background

To address this question, we have considered each of the following:

• Canadian Institute of Actuaries’ Rules of Professional Conduct: The Chief Actuary and their co-signatories are Fellows of the Canadian Institute of Actuaries (CIA), the professional body governing the education, qualification, conduct and work of actuaries in Canada. The CIA promulgates the professional rules and ethical standards with which a member must comply and thereby serve the public interest. The Rules of Professional Conduct are the Institute’s highest level of guidance to its members. Failure to adhere to the rules may result in disciplinary proceedings.

• CIA Standards of Practice: These standards govern the work performed by actuaries in Canada. These include general standards governing all areas of practice and practice-specific standards governing work in specific areas. Part 1000 – General Standards apply to all areas of actuarial practice. Part 7000 – Social Security Programs applies to an actuary when performing or reviewing, advising on, or opining on work related to social security programs.

• International Standards of Actuarial Practice: The International Actuarial Association (IAA) develops International Standards of Actuarial Practice (ISAPs) which are model standards of practice. The IAA encourages its member associations to have in place standards of practice that are substantially consistent with these standards. ISAPs are model standards of actuarial practice and, as such, are not binding on any actuary. ISAP 2 – Financial Analysis of Social Security Programs is intended to promote the development of consistent actuarial practice for social security programs throughout the world. While not binding, it serves as a useful reference.

• Canada Pension Plan: This statute provides the terms of reference of the Chief Actuary when preparing an actuarial report in relation to the CPP. Section 113.1 identifies the actuarial information required by the federal and provincial Ministers of Finance when recommending changes to CPP benefits or contribution rates, or both. Section 115 stipulates the timing, contents and certain other aspects of the Chief Actuary’s triennial report.

Below, we consider each of these in turn.

3.2 Canadian Institute of Actuaries’ (CIA) – Rules of professional conduct

The following Rules of professional conduct of the CIA are particularly relevant to this review:

• Rule 1: A member shall act honestly, with integrity and competence, and in a manner to fulfil the profession’s responsibility to the public and to uphold the reputation of the actuarial profession.

• Rule 2: A member shall perform professional services only when the member is qualified to do so and meets applicable professional continuing qualification standards.

• Rule 3: A member shall ensure that professional services performed by or under the direction of the member meet applicable standards of practice.

We are satisfied that the Chief Actuary and their staff have met the requirements of the CIA Rules of Professional Conduct.

Further to Rule 2, Section 2 of this report expands on our assessment of the professional experience of the staff of the OCA. Under the auspices of Rule 2, the CIA has also promulgated Continuing Professional Development (CPD) requirements that are applicable to practicing actuaries. We have reviewed the CPD records of the Chief Actuary and her co-signatories to AR32 as well as the professional staff of the OCA who are Fellows of the Canadian Institute of Actuaries and confirm that they all met the CIA’s CPD qualification requirements.

Further to Rule 3, the next two Subsections expand on our assessment of the Chief Actuary’s compliance with applicable standards of practice.

3.3 Canadian Institute of Actuaries’ (CIA) – Standards of practice

3.3.1 General standards of practice – part 1000

Since the completion of AR31, the CIA issued a Notice of Intent, an Exposure Draft and Final Standards with respect to a quinquennial review of Part 1000. The revised Standards were effective October 1, 2025 and, therefore, were applicable in preparing AR32.

The changes to Part 1000 were relatively extensive, but also relatively inconsequential as Part 1000 pertains to the valuation of the CPP. The changes are too extensive to detail in this report, but we have reviewed the changes and do not believe that any of them conflict with the manner in which AR32 was prepared.

The General Standards of Practice of the CIA are extensive and detailed and cover many different topics that are relevant to the valuation of the CPP. Below we comment on those aspects that we believe are relevant.

The actuary should take a subsequent event into account if the subsequent event:

• Provides information about the entity as it was at the calculation date;
• Retroactively makes the entity different at the calculation date; or
• Makes the entity different after the calculation date and a purpose of the work is to report on the entity as it will be as a result of the event.

Early in 2025, US President Donald Trump announced a number of significant tariffs on various countries. Shortly following this announcement, equity markets experienced a strong downturn. We understand that the Chief Actuary considered whether this should be considered a subsequent event under the Standards of Practice. However, as time progressed, the markets rebounded and, upon completion of AR32, the investment returns of the plan were not substantially different than expected and the Chief Actuary determined that the event did not need special disclosure in AR32. We agree with the Chief Actuary’s opinion on this matter. There were no other events determined by the Chief Actuary to be subsequent events.

The CIA standard on data sufficiency and reliability requires the actuary to apply such procedures as are necessary for the actuary to arrive at a conclusion as to the sufficiency and reliability of the data. The Chief Actuary relies on data from multiple sources and has considered the qualifications, competence, integrity, and objectivity of the parties providing the data. AR32 includes a table detailing the source of each data file, the information provided in each data file, the validation processes and the OCA’s tolerance for errors. In addition, the OCA issued an in-depth report dated February 2022 entitled OCA External CPP Data Files Validation Process.

The CIA standard states that when the work involves the use of a model, the actuary should choose a model appropriate to the purpose and requirements of the work; and understand any limitations in the model that might make the results of the model inappropriate for the intended purpose or might produce a misleading result. The Chief Actuary and their staff are confident that the model used is appropriate and reliable and have been developing documentation to support the continuing use and evolution of the model.

The CIA standard on assumptions requires that the assumptions, individually and in the aggregate, should be appropriate. Most of our recommendations are with respect to strengthening the development of various actuarial assumptions. Nevertheless, we have concluded that the assumptions adopted for AR32 are reasonable, both individually and in the aggregate, and are therefore appropriate.

The CIA standard on provision for adverse deviations states that the actuary “should not include a provision [for adverse deviations] if the related work requires an unbiased calculation.” Section 113.1 of the Canada Pension Plan requires that the Chief Actuary determine the lowest constant contribution rate that, if maintained over the foreseeable future, results in specified projected asset to expenditure ratios that are constant. The Chief Actuary interprets this requirement as necessitating an unbiased calculation. Accordingly, each assumption used in the valuation is represented as a “best estimate” assumption. The consequence is that the overall valuation results, other than the sensitivity tests and scenario analyses, are likewise the Chief Actuary’s “best estimates” and do not include a provision for adverse deviations. We agree with the Chief Actuary’s use of “best estimate” assumptions.

In our view, the work on AR32 complies with the relevant portions of the CIA general standards of practice.

3.3.2 Social security programs standards of practice – part 7000

The social security programs standards of practice of the CIA apply to an actuary when performing or reviewing, advising on, or opining on work related to social security programs.

In 2022, the CIA formed a Designated Group (DG) to review Part 7000. This DG issued a Notice of Intent in October 2022 and an Exposure Draft on June 27, 2023. Following consultation, revised Standards were adopted effective October 1, 2025. It is noted that François Boulé, a Senior Actuary and a member of the OCA team, served as the Chair of the DG.

The changes to Part 7000 were largely editorial in nature, with the only substantiative change being clarification around the recognition of subsequent events. None of the changes had a material impact on the results reported in AR32.

In our view, the work on AR32 complies with the relevant portions of the CIA Social Security Programs Standards of Practice.

3.4 International Actuarial Association (IAA) financial analysis of social security programs International Standard of Actuarial Practice (ISAP) 2

ISAP 2 provides guidance to actuaries performing financial analyses of social security programs, or reviewing, advising on, or opining on such analyses, to give intended users confidence that:

• Actuarial services are carried out professionally and with due care;
• The results are relevant to their needs, are presented clearly and understandably, and are complete; and
• The assumptions and methodology (including, but not limited to, models and modelling techniques) used are disclosed appropriately.

In our view, the work on AR32 complies with the relevant portions of the IAA Financial Analysis of Social Security Programs – International Standards of Actuarial Practice 2.

3.5 Canada Pension Plan statute

The Canada Pension Plan stipulates the frequency, approximate timing and certain contents of the Chief Actuary’s triennial reports to the federal and provincial Ministers of Finance. In AR32, the Chief Actuary and their staff have complied with all of these statutory requirements.

Opinion on professional and statutory requirements

In our opinion, the work on AR32 complied with all relevant professional standards of practice and statutory requirements.

Section 4 – Data

In this Section, we address the following question:

4.1 Background

Appropriate data are required for “current status” data inputs into the computer model, for “validation” (back-testing) of the model, and to develop appropriate actuarial assumptions for future years. Data from Employment and Social Development Canada (ESDC) and the Canada Revenue Agency (CRA) normally flow to the OCA through Service Canada. The report details the sources of the various data used in the valuation.

The status and validation data, and the historical data used to develop assumptions, appear to be objectively derived, factual and up to date.

The valuation data on benefits, earnings and contributions received from ESDC are tested in detail by OCA for internal consistency and reasonableness. The data from other sources are reviewed by OCA for internal consistency and consistency with past data. Any irregularities are checked out with the data source and any data errors are corrected.

The Chief Actuary has advised us that staff had access to sufficient and reliable data to complete their work, and in AR32 has provided her opinion that “the data on which this report is based are sufficient and reliable”.

4.2 Observations

We have the following observations:

• The Chief Actuary appears to have access to the data required.

• The data are extensive and appear to be reasonably complete and available on a timely basis.

• The data are tested for reasonableness and internal consistency by the OCA and any deficiencies are resolved before the data are used.

• The Record of Earnings (ROE) file of all workers who ever made a contribution to the CPP appears to be sufficiently complete and accurate. There is however concern that earnings information is only available to a maximum of $99,999. Although this is currently sufficient for the purposes of the valuation, it will soon be inadequate.

• Service Canada’s Master Benefit File appears to be sufficiently complete, although there is some concern about the inability to verify survivorship with respect to those residing outside of Canada.

• Information is not available with respect to whether a person is a non-permanent resident. As the OCA now makes specific provisions for non-permanent residents, it would be helpful if this information was obtainable.

• The CPPIB provided information on their strategic portfolio, including the current asset allocation, the current target asset allocation and their long-range asset allocation strategy. The CPPIB also provided their rationale for the strategic portfolio and these asset allocations. The Chief Actuary made assumptions as to future asset allocations based on this information.

• The OCA maintains contacts with other Departments and Agencies, such as the CPPIB, ESDC, CRA, Statistics Canada, Finance Canada and the Bank of Canada, as well as with external agencies such as Retraite Québec, the Signal49 Research, the CD Howe Institute, and the University of Toronto’s Policy and Economic Analysis Program. All of this provides useful input.

• The OCA has identified its priorities for data enhancement that could lead to improved analysis.

In Section 6 we provide comments on how earnings are projected into the future and, in particular, how the earnings distribution of members of the CPP may change over time.

Opinion on data

In our opinion, the Chief Actuary had access to the information required to perform the valuation and completed such relevant tests and analysis on the data as might be expected.

Section 5 – Actuarial methods

In this Section, we address the following question:

5.1 Background

The results presented in AR32 are deterministic projections of the future contributions, investment income and expenditures of both the base CPP and the additional CPP year by year up to the year 2100. Also included are the deterministic projected pay-as-you-go contribution rates and the minimum contribution rates for both the base CPP and the additional CPP, as set out in the CPP statute.

5.2 Macro-simulation model

The projections of the contributions, investment income and expenditures are based on the OCA’s proprietary macro-simulation model.

The model projects future cash flows starting with current market data and using the demographic, economic and other assumptions. The demographic assumptions include fertility rates, mortality rates and migration rates. The economic assumptions include labour force participation rates, price inflation, real wage growth and assumed rates of investment returns. Other assumptions include pension take-up rates and rates of disability and termination therefrom. With the exception of the assumed rates of investment return, the assumptions are identical for both the base CPP and the additional CPP. The assumed rates of investment return are different for the two plans as they have different investment policies.

The model projects the population based on data which is grouped by age and sex. This differs from the approach used for the valuations of the vast majority of occupational pension plans which use a member-by-member seriatim based model. The model is also an open group model where future new entrants are considered. The valuations of the vast majority of occupational pension plans use a closed group approach where only the benefits and contributions of existing members are considered (some valuations incorporate new entrant assumptions in the normal actuarial cost). We agree with the use of an open group model approach using data grouped by age and sex.

The model is calibrated using a back-testing procedure. Model output for years prior to the valuation date is compared against historical values. Discrepancies are investigated and resolved. Resolution includes modest adjustment factors to better calibrate the model to historical experience. We are of the opinion that the adjustments made are reasonable.

The model is written in the Fortran program language. Fortran was developed in the 1950s and is especially suited to numeric and scientific computing. Fortran has continued to be updated over the years, but nevertheless is a dated program language that is not as commonly used as other newer programming languages. The OCA regularly reviews whether Fortran continues to be the optimal program language to use for the valuation, considering both its functionality and the ability to hire staff with sufficient knowledge to program changes in the code. Following discussions with the OCA, we are of the opinion that the continued use of Fortran is appropriate.

5.3 Form of output

The model produces the following outputs:

• projections of the demographics of the covered population and the projected contributions, investment income and expenditures;

• the pay-as-you-go contribution rates and the asset-to-expenditure ratios based on the current legislated contribution rate up to 2100;

• the current MCR for the base CPP, which consists of the steady-state rate and the full funding rate, as well as the projected MCRs for each of the next four triennial actuarial reviews;

• the FAMCRs and the SAMCRs for the additional CPP;

• a balance sheet showing estimates of the assets as a percentage of the liabilities under an open group approach as at December 31, 2024 and as at December 31, 2030;

• reconciliations of AR32 results with the results in AR31; and

• sensitivity tests and scenario analyses showing the results of applying alternate assumptions.

5.4 Contribution rates – base CPP

5.4.1 Pay-As-You-Go

Section 115 of the Canada Pension Plan requires the Chief Actuary to present “pay-as-you-go” contribution rates for the base CPP, that is, the contribution rates applicable for each year that develop expected contributions equal to that year’s expected expenditures, year-by-year for the first 30 years and thereafter every five years up to at least 75 years after the valuation date.

AR32 complies with this requirement.

5.4.2 Minimum contribution rate

Section 115 of the Canada Pension Plan provides for the MCR to be the sum of the “steady-state funding” contribution rate and the “full funding” contribution rates, as follows:

• The “steady-state funding” contribution rate, as calculated in a prescribed manner, is the contribution rate that provides for steady-state funding of the CPP, excluding post-1997 benefit improvements; and

• The “full funding” contribution rate, as calculated in a prescribed manner, is the contribution rate that provides for the full funding of post-1997 benefit improvements.

The steady-state method produces a contribution rate that is the lowest constant rate that, if maintained over the foreseeable future, results in projected asset-to-expenditure ratios that are generally constant. The asset-to-expenditure ratio for a year is the ratio of the projected assets at the end of the year to the projected expenditures in the following year. In practice, the steady-state rate is computed as the lowest level contribution rate, starting three years after the review date (called the “review period”), that produces the same projected asset-to-expenditure ratios in the 10th and the 60th years following the review period. The use of these years is stipulated in the Calculation of Contribution Rates Regulations, 2021. For AR32, this implies using the asset-to-expenditure ratios for 2037 and 2087.

Paragraph 113.1(4)(e) of the Canada Pension Plan requires that post-1997 benefit improvements be separately identified and funded on a “full funding” basis. That is, the steady-state contribution rate must be augmented to reflect benefit improvements that are deemed to be earned in the future. There must also be a temporary increase in the contribution rate to liquidate any unfunded liability resulting from the benefit improvement. The duration of the temporary increase must be consistent with common actuarial practice. The Chief Actuary has chosen 15 years for this purpose which is consistent with common practice in Canada.

AR32 appropriately determines the minimum contribution rates for the base CPP.

5.5 Contribution rates – additional CPP

The financing methods used to compute the FAMCRs and the SAMCRs are defined in the Calculation of Contribution Rates Regulations, 2021 as the lowest level of contribution rates, applicable after the end of the review period, such that:

• the present value of projected additional open group obligations is less than or equal to the projected additional assets and present value of projected additional contributions (open group assets);

• the projected assets-to-expenditures ratio of the additional CPP is the same in the 50th and 60th years following the end of the review period, but no earlier than in the years 2088 and 2098, respectively; and

• the SAMCR equals the FAMCR multiplied by the ratio of the earnings replacement rate of the second tier of the additional CPP to the replacement rate of the first tier (33.33%/8.33%, or 4).

The first requirement satisfies Paragraph 113.1(4)(d)(ii) of the Canada Pension Plan which states that contribution rates must be no lower than the rates that result in projected contributions and investment income that are sufficient to fully pay the projected expenditures of the additional CPP over the foreseeable future.

The second requirement satisfies Paragraph 113.1(4)(d)(i) of the Canada Pension Plan which states that, beginning with the year 2024, contribution rates are the lowest constant rates that can be maintained over the foreseeable future.

We agree with the manner in which AR32 complies with these requirements.

5.6 Actuarial balance sheet

An actuarial balance sheet compares assets to actuarial liabilities as at December 31, 2024 and as at December 31, 2030 on an open group basis.

In an open group actuarial balance sheet, it is assumed that the CPP is ongoing into the future, and the balance sheet takes into account future contributions and benefits of current and future members. Benefits and contributions are discounted to the valuation date at the assumed rate of investment return.

We agree with the methods used to determine the actuarial balance sheet.

5.7 Reconciliation with AR31

Actuarial standards of practice require that a valuation include a reconciliation of the changes in the financial position of the CPP since the previous valuation. The valuation includes a reconciliation of the MCR for the base CPP and a reconciliation of the FAMCR and SAMCR for the additional CPP, compared to those shown in AR31.

We agree with the reconciliations provided in the report.

5.8 Sensitivity testing and scenario analyses

There are various sensitivity tests and scenario analyses provided in AR32. These sensitivity tests and scenario analyses assist the reader in understanding the potential variability in future funding of the CPP and the future risks facing the CPP.

Although we have some recommendations for improvement, we generally agree with the sensitivity testing and the scenario analyses provided in AR32.

Opinion on Actuarial Methods

In our opinion, the actuarial methods adopted for AR32 were reasonable.

Section 6 – Assumptions

In this Section, we address the following question:

6.1 Background

The actuarial assumptions reflect the expected future experience of the CPP. In selecting the actuarial assumptions, it is expected that the actuary consider a number of factors, including:

• long-term historical data and trends;

• short-term historical data and trends;

• evidence of whether a “regime switch” or structural change has taken place;

• recent amendments to the CPP;

• any changes in policy (for example, CPPIB investment policy, ESDC administration policies and/or government policies on such items as inflation and immigration);

• expert academic and professional research;

• benchmarking with other similar plans; and

• other external sources of relevant information.

All assumptions incorporated in AR32 can be described as “best-estimate”. The CIA standards of practice simply define best-estimate as “without bias”.

The assumptions are intended to apply over the long-term, so consideration is expected to be given to long-term historical data. However, where the actuary judges that more recent data for a particular assumption indicates a regime switch or a new trend that is likely to continue for the long-term, the actuary is expected to recognize that switch or new trend in the assumption.

For many of the assumptions used in the valuation, the Chief Actuary has adopted a method that actuaries describe as “select and ultimate”. Under this approach, the particular assumption gradually changes over a period of years (the “select period”) from one that initially is close to actual recent experience to one that reflects the actuary’s best-estimate of the long-term future (the “ultimate” assumption). The length of the select period can differ for different assumptions. The choice is based on the actuary’s judgement and depends on factors including the nature of the assumption involved and on how significantly the ultimate assumption differs from recent experience.

Deciding on the best estimate assumption is not based on a unique theory or scientific source but relies on judgement. The Chief Actuary and her staff gather expert opinions on the key assumptions from a variety of sources and use their judgement to develop their best-estimate assumptions. The panel members collectively recognize this limitation in assessing the work of the Chief Actuary.

Because of the wide range and complexity of the assumptions and methodologies involved in actuarial reviews of the CPP, it is desirable for the Chief Actuary to seek out the advice and guidance of experts, including actuaries, demographers and economists, to help ensure that a wide range of analysis and opinion is considered and to enhance the credibility of the actuarial reviews.

The Chief Actuary has developed rigorous processes for the selection of assumptions. All decisions on assumptions are made in consultation with her internal staff. They draw upon the expertise of officials from other government departments and agencies who participate in interdisciplinary seminars, maintain effective two-way communication with the CPPIB, and devote a considerable amount of time to keeping abreast of experts’ views on demographic and economic matters. They also consider the comments and advice contained in the reports of previous actuarial review panels.

Below is a commentary with respect to our review of the development of each of the key actuarial assumptions. As a general comment, we believe that the assumptions were developed taking into account all of the above listed factors.

The major actuarial assumptions in AR32 are divided into four groups:

• demographic assumptions that reflect changes in the covered population and include fertility rates, mortality rates and net migration rates;

• economic assumptions that reflect changes in the labour force, price increases and real wage increases;

• investment assumptions that reflect the projected asset allocations, the expected rates of investment returns and the expected investment expenses; and

• benefit expenditure assumptions which include benefit eligibility rates, average earnings related benefit, retirement pension take-up rates, post-retirement benefit expenditures, disability incidence and termination, survivor pension and mortality and CPP operating expenses.

6.2 Demographic assumptions

6.2.1 Fertility

Fertility rates are used to project the assumed number of births in each future year. The valuation develops the assumed number of future births by using assumed fertility rates by five-year age bands, which vary by calendar year, and applying these fertility rates to the projected female population.

The ultimate expected fertility rates for each age 5-year age band have been developed through consideration of past experience and future expectations.

In considering past experience, the OCA has noted that fertility rates have dropped considerably since the 1960s and 1970s. However, while fertility rates have somewhat stabilized over the last 40-50 years, there continues to be a gradual decline in fertility. As well, there continues to be a trend to higher fertility rates for older women and lower fertility rates for younger women. The OCA has also noted that recent low fertility rates may be affected by uncertainties due to the recent COVID-19 pandemic, the resulting high inflation environment and the increased cost of housing. Finally, the recent large increase in non-permanent residents, may have contributed to depressed fertility rates.

In considering future expectations, the OCA has undertaken regression analysis on each 5-year age band and has used their judgement to estimate future long-term fertility rates. In particular, the OCA expects fertility rates to be largely stable into the future as the short-term depressed fertility rates rebound, but the longer term trend to lower fertility continues for a few more years. The OCA assumes a long-term fertility rate of 1.35.

The assumed fertility rates by 5-year age bands have been graded from current levels to the assumed ultimate assumption by 2033.

The same analysis has been undertaken for Quebec and the rates for the rest of Canada have been obtained by subtracting Quebec from the whole of Canada.

We concur with the OCA’s approach in developing the assumed rates of fertility. We believe that the approach used and the resulting assumption are reasonable.

Opinion on fertility

In our opinion, the assumed rates of fertility adopted for use in AR32 are reasonable.

6.2.2 Mortality

The assumed current rates of mortality were developed in two steps: (1) development of general Canadian population assumed mortality based on past experience; and (2) development of specific group assumed mortality for the several types of beneficiaries (e.g., retirees, disabled members, dependents and survivors). The purpose of the second step is to adjust the general population mortality rates to account for the specific mortality experience of CPP retirement and survivor beneficiaries. Mortality rates for disability beneficiaries are based on actual experience for that segment of the population.

After the development of these current mortality rates, future mortality rates were projected using mortality improvement factors.

The basis for the general Canadian population mortality included the Canada Life Tables from the Canadian Human Mortality Database for the period covering 1921-2011 and the Statistics Canada Life Tables for the period covering 2012-2020. It was assumed that the effects of COVID-19 and the opioid crisis will be temporary and should not be included in projecting future mortality rates. This assumption is reasonable, but should be tested at the next actuarial valuation with the new experience of mortality.

Annual mortality improvement rates (MIRs) were analyzed by age, sex and period. For the purpose of projecting MIRs, the starting 2019 MIRs were calculated as the average annual MIRs experienced in Canada and Québec over the 15 year period 2004-2019, based on the Canadian Human Mortality Database and Statistics Canada Life Tables mortality rates. The ultimate MIRs were derived using a combination of backward- and forward-looking approaches. The analysis of Canadian experience over the period 1921 to 2019, was combined with an analysis of the possible drivers of future mortality improvements, including causes of deaths; for example, the improvement in mortality related to heart diseases is expected to decline. Drivers of future mortality improvements are uncertain and we are not aware of a credible source of information on those drivers that can be used by actuaries. It should be noted that the focus was placed mainly on ages over 65. MIRs for males at most ages are currently higher than those for females but are assumed to decrease to the same level as female rates from 2039 onward. The gap between male and female life expectancy is expected to continue to shrink but not disappear.

The AR32 ultimate mortality improvement rates are higher than those assumed in AR31 at all ages and both sexes. Until ages 89, the ultimate rates have been increased from 0.8% to 1.0%. These ultimate rates are comparable to those used in the UK and in the USA.

Considerations were given to the recent research paper released by the CIA. In this paper, the ultimate rate is 1.3% and is based on an analysis of past improvements, without including judgement about the future. It indicates that a reasonable range would be between 1.0% and 1.9%. The OCA assumes, based on an analysis of causes of deaths, that future mortality improvements will be lower than past improvements. In our view, this is a reasonable assumption.

Separate studies of mortality for retirees, disabled members and survivors were performed. A study was conducted of mortality for four pension level bands for retiree categories. We agree with the manner in which this analysis was done.

Opinion on mortality

In our opinion, the assumed rates of mortality, including the assumed rates of mortality improvement, adopted for use in AR32 are reasonable.

6.2.3 Migration

There are four components to the assumed rate of migration:

• Immigration;
• Emigration;
• Non-permanent residents; and
• Interprovincial migration (i.e., flow of people between Quebec and the rest of Canada).

6.2.3.1 Immigration

The immigration assumption in AR32 reflects both recent experience and stated federal government short-term targets, with a transition toward a long-term ultimate rate of 0.82% of the population.

Indeed, the best-estimate immigration assumption selected by the OCA for AR32 takes into consideration the 2024 Annual Report to Parliament on Immigration, which includes the Government of Canada’s target immigration levels for 2025 to 2027. These levels represent respectively 0.96%, 0.92%, and 0.88% of the population of said years. These levels are assumed to gradually decrease towards the observed immigration rates for the 20-year period ending in 2024.

Immigration levels in recent years have been elevated relative to historical norms, reflecting policy choices aimed at supporting labour force growth and economic activity. The assumption of a gradual decline from current levels toward an ultimate rate based on a 20-year historical average appears reasonable and appropriately balances recent experience with longer-term sustainability considerations.

Compared to AR31, the ultimate immigration assumption has been modestly increased, contributing to a higher overall net migration assumption. This change is consistent with observed trends and policy direction over the intervaluation period.

However, immigration levels are inherently policy-driven and subject to economic, social, and political considerations. As such, there is greater uncertainty associated with this assumption relative to other demographic factors such as mortality. In particular, the assumed persistence of relatively high immigration levels over the long term may be optimistic if future policy priorities shift or absorptive capacity constraints (e.g., housing, infrastructure, labour market integration) become binding.

Overall, we consider the immigration assumption to be reasonable for the purposes of a best-estimate projection, but note that it should continue to be closely monitored in future valuations.

Moreover, the Panel suggests that the OCA pursue additional information on the profile and age distribution of new immigrant households, as this may enable the OCA to better calibrate the entry ages of new immigrants in its population projections.

6.2.3.2 Emigration

The ultimate assumption for emigration is based on an 8-year average ending in 2024. Only 8 years of data is considered since Statistics Canada revised its methodology for reporting emigration data in 2017. The net emigration rate is expected to decrease slightly from 0.12% of the population in 2024 to 0.11% by 2026 and remain at that level thereafter.

The emigration assumption in AR32 is broadly consistent with that used in AR31.

Emigration rates for Canada have exhibited relatively low volatility compared to immigration flows and have remained relatively stable late since the 2000s. The assumption adopted by the OCA reflects this stability and is supported by recent experience.

Given the relatively small magnitude of net emigration compared to immigration, and its limited contribution to overall population growth, we agree that maintaining a stable long-term assumption is appropriate.

We therefore consider the net emigration assumption to be reasonable and do not identify any material concerns in this area.

6.2.3.3 Non-Permanent Residents

AR32 introduces a revised and more explicit methodology for modeling non-permanent residents (NPRs), representing a significant enhancement compared to AR31.

We view this methodological improvement as appropriate and necessary given the increasing importance and volatility of NPRs in Canada’s demographic dynamics. The explicit treatment enhances transparency and allows for a more realistic representation of short-term fluctuations.

The proportion of NPRs in the population increased sharply in recent years, reaching historically high levels. The OCA has responded by modeling NPRs explicitly as a percentage of the population, with a gradual decline from 7.3% in 2024 to an ultimate level of 2.5% by 2050.

The NPR assumption is divided into three periods. The first period reflects government targets ending in 2027. The second period addresses demographic aging up to 2035, with the NPR level assumed to reduce but remain elevated. The third period, ending in 2050, assumes the level of NPR will return to levels that are more in line with longer term historical averages. As such, the level of NPR as a percentage of the population is assumed to trend down linearly across these periods: from 7.3% observed in 2024, to 5% in 2026, 4.0% in 2035, and then to an ultimate rate of 2.5% in 2050, remaining at that level thereafter. The ultimate rate of 2.5% was selected to give some weight to recent higher levels of NPR, while still reflecting longer-term historical trends.

The assumed long-term decline in NPR levels reflects a reversion toward historical norms while still incorporating some allowance for structurally higher levels than in the past. This approach appears reasonable, although we note that the assumed ultimate NPR levels are significantly lower than those projected by Statistics Canada (they assume a long-term rate of 4.5%). Significant information on NPRs will likely be available when AR33 is prepared and we encourage the OCA to carefully consider this assumption.

NPRs differ from permanent residents in terms of labour market attachment, contribution density, and benefit eligibility. As such, their impact on the CPP is not equivalent to that of permanent immigrants. The extent to which NPRs transition to permanent residency, and their earnings profiles while in Canada, introduce additional uncertainty.

Modelling the NPRs explicitly in AR32 has enabled the OCA to incorporate an improvement to the retirement benefit eligibility rates methodology to reflect the impact of NPRs on retirement eligibility. This adjustment to retirement eligibility rates is linked to the assumption on the evolution of the number of NPRs as a percentage of the population.

Overall, we consider both the methodology and the assumption to be reasonable, while noting that this area is subject to significant uncertainty and warrants continued refinement as more data becomes available.

6.2.3.4 Interprovincial migration

The assumed levels of interprovincial migration are not material and are reasonable.

Opinion on migration

In our opinion, the rates of net migration adopted for use in AR32 are reasonable.

6.3 Economic assumptions

6.3.1 Labour market / Employment / Number of earners

The labour force is projected implicitly through assumed levels of labour force participation rates, job creation rates and unemployment rates. The labour force participation rates are determined for 5-year age bands by sex.

The OCA has put significant thought into the development of the appropriate labour force participation rates for each age band, including rationale and supporting data. In general, the labour force participation rates are expected to increase for each age cohort group as labour shortages grow, primarily due to the aging of the baby boomers. The assumption by sex includes a gradual decrease in the labour force participation rate gap between males and females, but assumes that a gap will continue into the future.

Moreover, the assumption also reflects the expectation of longer working lives, driven by continued trends in increasing flexibility in work arrangements, continued increases in life expectancy, and possible insufficient retirement savings. All of these trends are assumed to encourage older workers to delay their retirement and exit the labour force at a later age.

The participation rate for ages 18–69 is assumed to reach around 82% for men and 76% for women, while the unemployment rate is assumed to stabilize at 6.1% in the long term.

Although the participation rates of both males and females within all age groups are expected to increase over the projection period from their 2024 levels, these increases in participation rates are not sufficient to offset the projected decrease in the overall participation rate (ages 15 and over) due to the demographic shift resulting from an aging population.

We note that these assumptions implicitly reflect a view that recent labour market disruptions are temporary and that the Canadian labour market will revert to a relatively stable long-term equilibrium.

The projected growth in the number of contributors is therefore driven primarily by demographic factors, particularly migration, rather than significant changes in labour market behavior.

We consider these assumptions to be reasonable. However, some structural uncertainties remain, including:

• the long-term effects of population aging on participation rates,
• potential shifts in work patterns (e.g., gig economy, part-time work, effects of climate change and artificial intelligence),
• and the labour market integration of recent immigrants and NPRs.

These factors could affect both the number of contributors and the level of contributory earnings. We encourage the OCA to continue gathering any relevant data, especially in relation to shifts in work patterns, and monitoring behavioral labour participation changes to assess the need to adjust its current assumption setting framework.

Overall, we find the labour market assumptions to be appropriate for best-estimate purposes, while noting that future experience could differ if structural changes materialize. Nevertheless, the one area where we have some concern is with respect to the labour force participation rates for older workers.

Indeed we believe that, because of improvements in health and life expectancy, together with the prospect of tight labour markets associated with the retirement of the baby boomers, and technological developments that make working easier, as well as the trend in other countries to raise the retirement age, there will be a strong tendency for individuals to continue working to a later age in the future. This trend has already started in Canada and in many other countries. Furthermore, we expect that many Canadians will retire gradually and will continue to work part time. These considerations will change the entrenched social expectations of early retirement. A combination of these factors is likely to result in significant increases to the labour force participation rates for Canadians over the age of 55 and, in particular, those over the age of 60. We note that AR32 does indeed incorporate increases in labour force participation rates at older ages based on the above-mentioned factors. However, we still think that the assumption could benefit from further research and analysis.

Opinion on labour force

In our opinion, the rates of labour force participation, job creation and unemployment adopted for use in AR32 are reasonable.

6.3.2 Price increases

The rate of price inflation is a necessary assumption for an actuarial review of the CPP as contributions, benefit payments and investment returns are all affected by inflation.

Inflation in Canada was extremely volatile during the 20th century, with long runs of both very high and very low inflation. In the 21st century (at least before 2020 and the COVID-19 pandemic), there was remarkable success at keeping the annual inflation rate in Canada generally within a range of +/-1% around the Bank of Canada’s policy target of 2%.

The COVID-19 pandemic resulted in a significant increase in the rate of inflation in the early 2020s. However, with the effective end of the pandemic, central bankers have renewed their determination to control inflation and have successfully brought it back within the Bank of Canada’s target commitment (2% per year, with a range of 1% to 3%). The Chief Actuary has therefore assumed a rate of inflation in AR32 of 2.0% per year.

We note that such assumption is consistent with many forecasts by economists and with the implicit inflation rates in real return bonds. Also, our inquiries lead us to believe that the current framework with respect to prices will continue for a long time and that there is no reason to expect a change to the current target of 2% per year.

Opinion on price increases

In our opinion, the rate of inflation adopted for use in AR32 is reasonable.

6.3.3 Real wage increases

Both contributions and initial benefits under the CPP are affected by wage increases. Subsequent benefit increases are affected by inflation. The wage increase assumption is separated into two parts: the inflation assumption (discussed above) and the real wage increase assumption (the portion of wage increases above inflation).

The assumed rate of real wage increases is developed by summing five components of wage growth; productivity, compensation ratio, earnings ratio, average hours worked and price differential. Considerable analysis is done to determine the best-estimate assumption for each of these components. The most material component is the rate of productivity growth.

For the long term, AR32 assumes that productivity growth will be 0.95% per year. If we disregard the relative stagnation in productivity growth observed during the COVID period, this assumption is roughly in line with the experience over the last 20 – 25 years and appears to be in the mid-range of the views of economists and other knowledgeable entities. The other components are expected to be marginally negative so that the long-term real wage growth is assumed to be 0.8% per year.

Consequently, the assumed real wage increase in AR32 is 0.8% per year, a slight decrease from the 0.9% assumption in AR31.

This revision reflects recent experience of modest productivity growth and continued uncertainty regarding long-term economic growth prospects. In particular, the revision reflects a more measured expectation that prior gains from higher education will be difficult to replicate.

We note that real wage growth is a key driver of CPP financing, as it directly affects contributory earnings, contribution revenues, and ultimately, benefits expenditures. AR32 includes a sensitivity analysis on this assumption that gives the reader a sense of its impact on the MCR.

Overall, we consider the real wage increase assumption to be reasonable and appropriately prudent within a best-estimate framework.

However, there are competing forces affecting future wage growth, including technological change, globalization, and shifts in the composition of the labour force. These introduce uncertainty around the long-term outlook and the OCA should remain diligent in assessing the future impacts of these considerations.

Opinion on real wage increases

In our opinion, the rates of real wage growth adopted for use in AR32 are reasonable.

6.4 Investment assumptions

Sizeable funds are projected to accumulate for both the base CPP and the additional CPP and the rate of investment return is therefore an important factor in determining the contribution rates. As at December 31, 2024, the assets of the base CPP were $651 billion and the assets of the additional CPP were $54 billion. The assets of both plans are projected to grow significantly over the coming decades.

6.4.1 Assumed asset allocation

The foundation of the CPPIB’s investment strategy is a two-asset portfolio, referred to as the “Reference Portfolio”. The Reference Portfolio is used to establish how much risk the CPPIB is intending to take and consists of a global equity benchmark and a Canadian government nominal bond benchmark.

The CPPIB has different Reference Portfolios for each of the base CPP and the additional CPP. The current Reference Portfolio for the base CPP is 85% global equity and 15% Canadian government nominal bonds. The current Reference Portfolio for the additional CPP is 55% global equity and 45% Canadian government nominal bonds.

To invest the assets of the base CPP and the additional CPP according to their Reference Portfolios, the CPPIB developed a two-pool investment structure made up of a Core pool and a Supplementary pool. The Core pool is a diversified portfolio of equities, fixed income and real assets, whereas the Supplementary pool consists of fixed income securities. The base CPP is invested 100% in the Core pool. As such, the Core pool has the same risk characteristics as the Reference Portfolio for the base CPP. The additional CPP is invested in both the Core pool and Supplementary pool such that the overall risk level is consistent with its Reference Portfolio.

Given materiality, the rest of our comments relate only to the base CPP and not the additional CPP.

The assumed future asset allocation is dependent on the future investment framework developed by the CPPIB. The CPPIB informed us how they communicated this framework to the Stewards of the plan, but we were not provided with documentation showing that the Board of the CPPIB or the Stewards have approved this framework. We are comfortable that the OCA has taken a reasonable approach in interpreting this framework, but we would like to suggest more clarity on whether this derisking strategy is a policy rather than an assumption.

From the Reference Portfolios, the CPPIB has developed Strategic Asset Portfolios that are expected to produce similar volatility and better expected returns than the Reference Portfolios. We have reviewed the framework for the development of the Strategic Asset Portfolios, but we note that the actual Strategic Asset Portfolios are not publicly disclosed and were not disclosed to us. The CPPIB has approved the Strategic Asset Portfolios and provided it to the OCA. The OCA developed the current assumed asset mixes based on the information received from CPPIB.

As at December 31, 2024, the actual asset mix of the base CPP is 53% equities (28% public, 25% private), 25% fixed income (31% marketable bonds, 2% non-marketable bonds, 14% credit, -22% cash) and 21% real assets. The -22% cash is debt used for leverage purposes and adds significant additional returns depending on the spread between the yield of bonds (assumed 1% real) and the expected return of the portfolio. The OCA assumes the asset mix of the base CPP as at December 31, 2024 to be 53% equities, 25% fixed income securities and 21% in real assets which is broadly consistent with the actual asset mix.

The CPPIB has not formally adopted long-term asset mix targets, rather they must be derived implicitly from the investment framework. The Chief Actuary assumes an ultimate asset mix for the base CPP equal to 46% equities, 35% fixed income securities and 19% real assets. This assumption is based on an expectation that the CPPIB will choose to de-risk the assets as investment income represents a greater share of revenues and appears to be consistent with our understanding of the development of the Strategic Asset Portfolio for the base CPP.

In reviewing the development of the asset mix, including the optimal risk return relationship, it is not clear to us how the currency and leverage risk were analyzed. We encourage the OCA to ask for more information on these risks.

Opinion on asset allocation

In our opinion, the assumed asset allocations, for both the base CPP and the additional CPP, and in both the short-term and the long-term, used in AR32 are reasonable.

6.4.2 Real rate of return on investments

As with the assumed increases in employment earnings and benefit payments, part of the assumed nominal rate of investment return is attributable to general price inflation. In this section, we focus on the real rate of investment return (that is, net of the rate of inflation).

For the base CPP, the best-estimate average real rate of return assumption over the 75-year projection period in AR32, net of investment expenses, is 4.05% per year.

For the additional CPP, the best-estimate average real rate of return assumption in AR32, net of investment expenses, is 3.53% per year.

In developing these assumed real rate of return, the OCA considered whether to reflect any potential impact of additional tariffs on trade with the USA announced in 2025 as a subsequent event, but ultimately decided against this action. We support this approach.

The ultimate rates reflect a “building block approach” whereby, in real terms:

• Marketable bonds (Core pool) are assumed to return real 1.4% per year by 2035 and thereafter.

• Credit, which includes investments in corporate bonds, private debt and private mortgages is assumed to return an ultimate real rate of 3.5% per year in the Core pool and 2.9% per year in the Supplementary pool from 2035 onward.

• The ultimate total real rate of return for public equities is 4.2% per year beginning in 2035.

• The ultimate total real rate of return for private equities is 5.1% per year beginning in 2035.

• Real assets are assumed to provide an ultimate real rate of 3.9% in 2035 and beyond.

• Borrowing cost related to financial leverage is assumed to be 1.0%, which corresponds to the real rate of return on cash 0f 0.5% plus a premium of 0.5%.

• Cash including borrowing cost are assumed to yield a real rate of return of 1.0%

• An allowance of 0.45% for rebalancing and diversification

We have reviewed each assumption for all asset classes and the comparison with expectations of fund managers and other actuaries. We are comfortable that the assumptions are within a reasonable range although lower than the median expectations of fund managers and other actuaries. We encourage the OCA to discuss these differences with representatives of these large plans.

Opinion on real rate of return on investments

In our opinion, the real rates of returns on investment adopted for use in AR32 are reasonable.

6.4.3 Investment expenses

CPPIB expenses are not included in CPP operating expenses in AR32 but are reported as allocated to the CPPIB assets and accounted for separately in the investment expenses assumption. We support this method of reporting.

AR32 assumes that investment management expenses for the Core pool will be 1.0% per year. Of these, 0.82% per year are attributable to active management. Consistent with Canadian actuarial practice and standards, AR32 reflects an assumption that the added value from active management will exactly equal the incremental expenses incurred to pursue that active management strategy. That is, no net added value is assumed to be either gained or lost. The Peer Review report for AR30 contained a full analysis on historical CPPIB expenses and added value due to active management which supports this assumption. This is logical, as one would expect that the fees for active management will be recovered by additional returns. But, it is not automatic. In fact, while historically the added value due to active management has been greater than the fees associated with active management, this has not been the case more recently.

We support this approach at the current time. But, we believe it is important to closely monitor the relationship between incremental returns and incremental expenses. The OCA should review the calculations done by the CPPIB on added value due to active management and should disclose the actual added value in the actuarial report.

Opinion on investement expenses

In our opinion, the assumption that the added returns achieved by the CPPIB in pursuing an active investment strategy will be exactly equal to the expenses incurred in pursuing such a strategy, adopted for use in AR32, is reasonable.

6.5 Other assumptions

6.5.1 Benefit eligibility rates

Benefit eligibility rates are influenced by a combination of demographic, economic, and behavioural factors, including labour force attachment, health trends, and program rules.

For AR32, benefit eligibility rates (as a percentage of the Canada less Quebec population) for retirement, disability, and death/survivor benefits are projected using regression formulas that were developed to closely reproduce historical eligibility rates observed over the period 1966 to 2023 from CPP records of earnings data provided by ESDC.

The projected eligibility rates take into account the applicable eligibility rules for each type of benefit, the proportion of contributors, and the length of the contributory period for existing and future earners. The benefit eligibility assumptions in AR32 are based on recent experience and reflect projected trends in retirement, disability, and survivor benefit incidence.

AR32 incorporates an improvement to the retirement benefit eligibility rates methodology and was made to reflect the impact of NPRs on retirement eligibility. This adjustment to retirement eligibility rates is linked to the assumption on the evolution of the number of NPRs as a percentage of the population. We view this enhancement as a needed step in the right direction.

We consider the assumptions to be reasonable. However, some uncertainty remains regarding future behavioural trends, particularly retirement timing decisions and labour force participation at older ages.

These factors may evolve in response to changing economic conditions and policy environments.

Opinion on benefit eligibility rates

In our opinion, the benefit eligibility assumptions are appropriate for the purposes of the valuation.

6.5.2 Average earnings related benefit

The demographic assumptions are used to project the current population and number of covered workers into the future. However, the projected contribution revenues and benefit expenditures largely depend on the total amount of covered earnings and the evolution of average earnings.

We understand that the OCA has access to individual earnings data, except that the available earnings data is capped at $99,999. This data is used to determine averages by 5-year age bands and sex, but only considering earnings up to the YMPE (for the base CPP) and up to the YAMPE (for the additional CPP). While AR32 reports these averages, the actual valuation incorporates distributions around these averages. This limitation in the available earnings data will gradually become an issue for deriving realistic earnings distribution around the average.

In projecting earnings into the future under the “best-estimate” assumptions, it is assumed that the distribution around these averages remains constant.

However, the pattern of earnings growth across different earnings levels may evolve over time due to changes in technology, automation, immigration patterns, population aging, and skill requirements. Should such developments materialize, they could have implications for the future funding of the CPP. AR32 does include two valuable scenario analyses in which earnings growth differs across earnings brackets.

AR32 indicates that the gap in earnings-related benefits, expressed as a percentage of the maximum benefit, between males and females is expected to decrease over time. This reflects the assumed narrowing of the male–female earnings gap, as well as the projected increase in female participation rates.

Opinion on average earnings related benefit

In our opinion, the methods of reflecting the average earnings related benefits adopted for use in AR32 are reasonable.

6.5.3 Retirement pension take-up rates

The benefits paid from the CPP (and to a lesser extent the contributions paid into the CPP) are affected by the ages at which individuals start their CPP pension. The CPP’s normal retirement age is 65, the earliest commencement age is 60, and the latest commencement age is 70.

Those who choose to receive the retirement benefit while continuing to work must still participate in the CPP by making continuing contributions (matched by their employer) until age 65, and they receive commensurate benefit increases. Between ages 65 and 70, pensioners who are working can opt to contribute to the CPP and, if so, their employers must also contribute, with commensurate benefit increases to the pensioner.

Although the adjustment factors may be expected to encourage participants to apply for benefits at a later age, the removal of the Work Cessation Test has in part offset this effect. If experience matches the assumed retirement rates, we believe that many Canadians would be commencing their CPP pension while continuing to work. This is earlier than they probably should be commencing their pensions due to the taxation effects of early commencement.

The OCA has reflected the recent trend towards more members deferring their pension and is assuming a significant decrease in the take up rate at age 60 compared to AR31, but is projecting only a slight future decrease in the take up rate compared to recent experience at age 60.

We believe that Canadians and their financial planners are gradually gaining a better understanding of the value of deferring pensions under the CPP. Many financial planners are now recommending deferring. Our view is that the combination of these recommendations, working later, the risk longevity, the implicit returns in deferring and understanding the negative taxation effects of commencing a CPP pension while still working will result in more Canadians delaying commencement of their CPP pension. While the final effects of such change on contributions may be small, we encourage the OCA to spend more time considering this assumption with the view of perhaps assuming more delayed pension commencements in the future.

Opinion on retirement rates

In our opinion, the retirement rates adopted for use in AR32 are reasonable.

6.5.4 Benefit expenditures and post-retirement benefit expenditures

The approach used in AR32 to project future benefits paid is based on deterministic projections using grouped data and takes into consideration the administrative agreement between the CPP and the QPP for beneficiaries who have contributed to both schemes.

The retirement, survivor, disability, and children’s benefits expenditures for each year following the year of benefit take-up for a given cohort, age, and sex, takes into consideration the benefit expenditures in the year of take-up, the probability of survival from the age at benefit take-up to the projected attained age, as well as the pension indexation which is applicable each 1st of January following the benefit emergence.

Moreover, the rules regarding combined retirement and survivor benefits, as applicable, are also taken into consideration.

This approach is applied to all benefits starting from 1966 up to the current observed period (2023). Calibration factors (vectors) are derived from actual to projected historical experience, which are then applied for future projections of the various types of benefits. The projection of benefits already in pay as at the valuation date is fully integrated with the projection of benefits emerging after that date, thus ensuring full consistency between past experience and the future.

Benefit eligibility rates (as a percentage of the Canada less Quebec population) for retirement, disability, and death/survivor benefits are projected using regression formulas that were developed to closely reproduce historical eligibility rates observed over the period 1966 to 2023 from CPP records of earnings data provided by ESDC. The projected eligibility rates take into account the applicable eligibility rules for each type of benefit, the proportion of contributors, and the expected length of the contributory period for existing and future earners.

Furthermore, and as mentioned previously, AR32 introduced an improvement to the retirement benefit eligibility rates methodology to reflect the impact of NPRs on said retirement eligibility.

Retirement benefit expenditures result from retirement pensions and post-retirement benefits paid under the base CPP and the additional CPP. The retirement benefits paid under both components of the CPP are earnings-related. The total retirement benefit payable also includes post-retirement benefit amounts.

New retirement pension expenditures are determined for each age from 60 to 70, sex, and calendar year of emergence and are determined based on the projected population, the retirement pension eligibility rate, the retirement pension take-up rate, the actuarial adjustment factor for early or late pension take-up, and the average earnings-related benefit.

Post-retirement benefits are paid to retirement beneficiaries who continue to work and contribute to the Plan. Said benefits are payable under both the base CPP and the additional CPP.

Working beneficiaries younger than 65 are required along with their employers to contribute, whereas contributions are voluntary once reaching age 65 (up to age 69). Employers of those working beneficiaries opting to contribute are required to also contribute. The post-retirement contributions paid in a year are applied toward providing post-retirement benefits in the following years.

In the year of retirement pension take-up, contributions are first applied toward maximizing the base and additional retirement pensions, with remaining contributions then applied toward a post-retirement benefit. This affects the proportion of working beneficiaries who contribute toward a post-retirement benefit in the year of pension take-up. For both males and females, the average contributory earnings of working beneficiaries for years after the year of retirement pension take-up are assumed to be between 20% and 35% lower than the contributory earnings of contributors who are not working beneficiaries, depending on the age and sex.

We appreciate the complexity of the methodology that is followed and applied by the OCA to project benefit expenditures and post-retirement benefit expenditures and find it to be an appropriate and robust approach.

Opinion on benefit expenditures and post-retirement benefit expenditures

In our opinion, the various assumptions derived and used in AR32 for the purpose of projecting expenditures and post-retirement benefit expenditures are reasonable.

6.5.5 Disability incidence and termination

Disability incidence rates (i.e., the number of new disability cases as a proportion of the eligible population) are used to calculate the number of new disability beneficiaries in every projection year. The process consists of first determining the portion of the population that is eligible for disability benefits and then multiplying this population by the disability incidence rates for each given year, age, and sex. The assumed disability incidence rates are the same for the base CPP and the additional CPP.

Data on disabilities was obtained from ESDC. This data included information on age, sex and reason for disability. Analysis of recent data with respect to disability incidence rates was difficult due to the effects of the COVID pandemic and due to some recent delayed reporting and delayed processing of disability claims. After adjusting the data for these effects, the long-term trend indicated a reduction in the incidence of disability which was reflected in AR32 (male rates decreasing from 2.90 to 2.70 and female rates decreasing from 3.60 to 3.40). The disability incidence rates were graded into these ultimate rates over a 5-year period. Analysis showed no appreciable change in the causes of disability. We concur with the selection of these select and ultimate rates.

Based on past experience, the incidence of disability is further allocated to 5-year age bands, obviously reflecting higher rates of disability among older workers. The analysis of this data appears reasonable.

An assumption is also required with respect to the termination of those who were collecting disability benefits. The three components of these terminations are deaths, recoveries and attainment of age 65. The rates determined by the Chief Actuary reflect past experience, including decreasing rates of recovery for longer duration disabilities, with which we agree.

Opinion on disability incidence and termination

In our opinion, the rates of incidence of disability and rates of termination of disability adopted for use in AR32 are reasonable.

6.5.6 Survivor pension and mortality

The mortality rates of survivors and beneficiaries were developed based on the CPP mortality experience for the year 2023. We support this approach.

Opinion on survivor pension and mortality

In our opinion, the mortality rates for survivors and beneficiaries adopted for use in AR32 are reasonable.

6.5.7 CPP operating expenses

CPP operating expenses include those incurred by various government entities in managing the CPP, but exclude those incurred by the CPPIB in managing the assets of the CPP. AR32 includes a projection of operating expenses for the base CPP and the additional CPP, both in dollar terms and as a percentage of total earnings.

Based on historical information and future expectations provided by ESDC, the OCA has projected future expenses as a percentage of total earnings to be 0.077% for the base CPP, a slight decrease from recent expense levels and 0.028% for the additional CPP, a slight increase from recent levels.

Opinion on CPP operating expenses

In our opinion, the assumed future operating expenses adopted for use in AR32 are reasonable.

6.6 Assumptions in the aggregate and opinion thereon

The Chief Actuary’s actuarial assumptions are best estimates, based on their review of past experience and judgement about the likely course of future experience. For most assumptions, there is considerable room for actuarial judgement. As a result, the range of values that would be considered reasonable can be quite wide. In our review of the major actuarial assumptions, we concluded that each of them is within the reasonable range.

Notwithstanding all this, we caution the reader that, since the range of reasonable assumptions is wide, so too is the range of reasonable valuation results. The sensitivity tests in AR32 present plausible ranges of results. However, actual results could be outside of the lower and higher cost projected results.

Opinion on assumptions in the aggregate

In our opinion, the assumptions adopted for use in AR32 are, in the aggregate, reasonable.

Section 7 – Gain (loss) analysis

An actuarial gain (loss) is an integral part of a valuation report as it provides information on why the financial position changed in the intervaluation period. The gain (loss) analysis assists readers of the report in understanding the results of the valuation and provides information to assist the actuary in establishing the actuarial assumptions.

Generally, there are three components to an actuarial gain (loss):

• Actuarial experience, namely, actual experience in the intervaluation period differing from expected experience based on the actuarial assumptions;
• Change in actuarial assumptions;
• Changes in the model, methods and underlying data.

The actuarial gain (loss) provided in AR32 is thorough and provides a good representation for the changes in the financial positions of the base CPP and the additional CPP.

Base CPP

AR32 provides a reconciliation of the steady-state rate, the full funding rate and the minimum contribution rate. The steady-state rate is the predominant measuring stick, so our comments relate to this metric.

There was only one material experience gain (loss) in the intervaluation period and that was an experience gain related to favourable investment experience. This experience gain was consistent with the fact that investment returns during the intervaluation period were greater than the actuarial assumption. All other experience gain (loss) items were reasonably small, thus indicating that each of the actuarial assumptions adopted in AR31 were reasonable, at least in the short term.

With two exceptions, the changes in the actuarial assumptions adopted in AR32 compared to AR31 had minimal change on the steady-state rate. The two exceptions were the changes in the assumed rates of fertility and the changes in assumed net migration. As would be expected, a reduction in the assumed rates of future fertility increases the steady-state rate as there is expected to be fewer future workers to support the benefits paid to future retirees. On the other, assuming higher levels of future net migration has the opposite effect as the increase in future workers helps to fund the benefits of future retirees.

Changes in the methodology resulted in a decrease in the steady-state rate of 0.111%. The methodology changes reflect a more explicit modelling of NPRs. NPRs are generally younger and therefore tend to contribute more to CPP than they receive in benefits. Also, many NPRs return to their country of origin and never apply for their CPP pension. For both of these reasons, the modelling changes would be expected to decrease in the steady-state rate.

Additional CPP

Given that the additional CPP has only been in existence for a short time period, none of the items in the actuarial gain (loss) are material. As shown in AR32, in aggregate, they result in a small increase in the additional minimum contribution rates, but there is no singular item that is worthy of additional comment.

Opinion on actuarial gain (loss) analysis

In our opinion, the actuarial gain (loss) analyses presented in AR32 are appropriate and appropriately illustrate the changes in the contribution rates during the intervaluation period.

Section 8 – Sensitivity tests and scenario analyses

The valuation determines the financial position of the CPP using best-estimate assumptions. Appendix E provides information on the uncertainty of results. This information includes sensitivity to varying plan experience, sensitivity to changes in individual actuarial assumptions and scenario analyses whereby certain macroeconomic events are assumed to occur.

While we agree with undertaking the core valuation using best-estimate assumptions, we believe that the sensitivity testing and scenario analyses are vital to understanding the financial position of the plan and the risks associated with the future financing of the plan. We are particularly concerned that the plan’s financing will gradually become more volatile as the assets increase and investment returns become a greater component of the financing of benefits.

We strongly encourage readers of the report to pay particular attention to the sensitivity testing and scenario analyses to truly understand the risks for the future financing of the plan. We also note that the sensitivity tests are done individually and that a combination of two or more adverse scenarios occurring is very possible.

While we are generally very supportive of the sensitivity testing and the scenario analyses that have been undertaken, we have two overriding comments.

1. First, there is little information as to the expected probability that each sensitivity test represents. We realize that there is no mathematical or deterministic way in which to measure the probability of an event falling outside of the range of the sensitivity, but some general indication as to whether the events are considered likely, somewhat likely, unlikely, etc. may be valuable to the reader.

2. Second, we believe, consistent with the 31st Peer Review Panel, showing sensitivity tests or scenario analyses that would result in the legislated contribution rate becoming insufficient would assist the reader in better understanding these risks. We realize that there are an infinite number of possible scenarios that could be considered, but showing even one or two would be helpful.

8.1 Intervaluation investment experience

8.1.1 Base CPP

There are two sensitivity tests with respect to investment return:

1. A one-time shock of 10% or 20% immediate investment related gain / loss; and
2. A stochastic forecast showing probabilities of the MCR at the next triennial valuation if the only experience item differing from expected was investment related experience.

The results of these sensitivity tests are valuable to the reader. In particular, a one-time investment related loss of 20% would result in the MCR being 9.62% and closer to the legislated contribution rate. Given the diversified nature of the investment portfolio, we believe that the assumed 20% negative investment related loss is appropriate. In our opinion, it reflects an unlikely, but possible, event. The report also discloses the probability distribution of the MCR at the next valuation (assuming no other experience gains or losses and no changes in the actuarial assumptions). These are not insignificant risks and present valuable information to the reader.

8.1.2 Additional CPP

Information is presented on similar sensitivity for the additional CPP. However, as there are limited assets in the additional CPP, the tests are done 20 years into the future.

While we laud the OCA for trying to provide additional information, we question whether there is value in showing sensitivity information assuming variability 20 years into the future. The information shown does little other than indicate that the additional CPP currently has little investment related risk but is expected to have greater investment related risk in the future. The quantity of this “greater” risk is really simply unknown at this time.

8.2 Sensitivity testing

The report includes sensitivity tests on the most important assumptions. We believe that the assumptions selected for the sensitivity tests were the appropriate assumptions. Below, we provide some comments on each of the sensitivity testing. While we provide some comments where we believe that the range could be greater or lesser (typically greater), we do note that this section is not intended to illustrate extreme situations but is intended to illustrate sensitivities. Therefore, our comments are merely comments and not recommendations.

8.2.1 Fertility

In general, the higher the assumed fertility rates, the better is the financial position of the base CPP as there are expected to be more future contributors to fund the past service liability of the base CPP. The opposite is true for a lower assumed fertility rate. There is minimal effect on the additional CPP of changes in fertility rates as there is no material unfunded liability. We agree with undertaking sensitivity analysis of fertility rates on the base CPP only.

The sensitivity tests are a lower cost ultimate total fertility rate for Canada of 1.65 and a higher cost ultimate rate of 1.05 (compared to the assumed total fertility rate of 1.35). We suggest that this range represents a large deviation from best-estimate and that actual experience is unlikely to differ to this extent. There is little evidence to support any significant increase in the fertility rate (as it has been trending downward for over 70 years) and a decrease to 1.05 would appear to be extreme. We would therefore consider the sensitivity analysis with respect to the rates of fertility to represent unlikely scenarios. Nevertheless, we are comfortable with the sensitivity presented.

8.2.2 Mortality

The assumed rates of mortality are projected in the future using mortality improvement scales. If mortality improves at greater rates than assumed, members will live longer than assumed and the financial position of both the base CPP and the additional CPP will be worse than shown in the valuation. The opposite will be true if mortality improves at lesser rates than assumed.

The range selected for the sensitivity analysis on the mortality improvement scale was to assume that mortality improvements would fail to materialize (life expectancies at age 65 in 2050 are about 2.5 years lower) or that mortality improvement rates are higher than those assumed (life expectancies at age 65 in 2050 are about 2.5 years higher). This range of deviation results in the MCR decreasing from 9.19% to 8.63% (under the lower life expectancy scenario) and, more importantly, the MCR increasing from 9.19% to 9.69% (under the higher life expectancy scenario).

We believe that the range selected is appropriate, particularly for the lower cost sensitivity. We do caution that medical enhancements may ultimately lead to mortality improving even greater than indicated by the higher cost scenario, although such a scenario would likely result in changes to other assumptions, such as assuming members worked longer.

8.2.3 Migration

Sensitivity testing was undertaken only in respect of the base CPP. No sensitivity testing was done for the additional CPP under the premise that the assumed rates of migration are not a material assumption. We agree with this approach. We also agree that the ranges shown for the high cost and low cost scenarios are appropriate.

The sensitivity test on migration assesses the impact on the base CPP’s MCR if the migration rate and NPR level assumptions are changed. This range of deviation results in an MCR decreasing from 9.19% to 8.85% (under the higher migration and NPR level scenario) and in an MCR increasing from 9.19% to 9.54% (under the lower migration and NPR level scenario).

We realize that predicting future rates of migration and NPRs is very difficult as they can depend on public opinion and political pressures. These pressure points work both ways, with some advocating for greater immigration / high numbers of NPRs and some advocating for the opposite. We suggest that the range could be greater on both ends, but particularly on the lower cost scenario and particularly for the NPRs. In our meeting with StatsCan, they indicated that their best-estimate long-term assumption for NPRs is 4.5% of the population which is higher than the high sensitivity shown in the report.

8.2.4 Inflation

The sensitivity tests for this assumption are a higher-cost scenario with an ultimate price increase rate (i.e. inflation) of 1.0% and a lower-cost scenario with an ultimate price increase rate of 3.0%. It is common to show sensitivity to economic conditions by varying the assumed rates by 1% and we believe that the sensitivity testing for the rate of inflation is appropriate.

This range of deviation results in an MCR decreasing from 9.19% to 8.97% (under the higher inflation scenario) and an MCR increasing from 9.19% to 9.44% (under the lower inflation scenario).

The sensitivity test on price increase rate assesses the impact on the additional CPP’s FAMCR and SAMCR if this assumption is changed by +/- 1%. Under the higher inflation scenario, the FAMCR and SAMCR decreased to 1.98% and 7.92% respectively (from 2.01% and 8.04%). Under the lower inflation scenario, the FAMCR and SAMCR increased to 2.05% and 8.20% respectively.

We agree with the selected range used in the valuation.

8.2.5 Real wage increases

The sensitivity test on real wage increase rate assesses the impact on the base CPP’s MCR if this assumption is changed by +/- 0.6%. This range of deviation results in an MCR decreasing from 9.19% to 9.07% (under the low cost scenario) and an MCR increasing from 9.19% to 9.32% (under the high cost scenario).

The sensitivity test on real wage increase rate assesses the impact on the additional CPP’s FAMCR and SAMCR if this assumption is changed by +/- 0.6%. Under the low cost scenario, the FAMCR and SAMCR decreased to 1.80% and 7.20% respectively (from 2.01% and 8.04%). Under the high cost scenario, the FAMCR and SAMCR increased to 2.24% and 8.96% respectively.

We suggest that the range could be wider. We particularly note that the future effects of artificial intelligence and climate change could have profound implications on the future of real wage increases (both positive and negative).

8.2.6 75-year average real rate of return

The sensitivity tests for this assumption were developed using a stochastic approach with the higher cost scenario being the scenario that was at the 80th percentile and the lower cost scenario being the scenario that was at the 20th percentile. As the investment risk for the additional CPP is less than the investment risk for the base CPP, this approach resulted in a higher variation in returns for the base CPP than for the additional CPP.

This is by far the most volatile of the sensitivity tests. The higher cost scenario results in minimum contribution rates well in excess of the legislated contribution rates for both the base CPP (11.38% and the additional CPP (2.97%).

We agree with the manner in which this sensitivity test was undertaken, however, we note that many such stochastic sensitivity testing for investment volatility considers the 5th and 95th percentiles as the range of likely outcomes. This sensitivity test highlights the fact that investment risk is the largest single risk facing the CPP.

8.2.7 Disability

Sensitivity testing was undertaken only in respect of the base CPP and only in respect of the incidence of pre-retirement disability. No sensitivity testing was done for the additional CPP under the premise that the incidence of pre-retirement disability is not a material assumption. No sensitivity testing was done for post-retirement disability since it is a relatively new benefit and there is not yet any credible experience on which to base the assumption. We agree with undertaking sensitivity analysis of the rates of incidence of disability on only pre-retirement disability and for only the base CPP.

If rates of disability are higher than assumed, the cost of the CPP will be greater as both benefits will be higher, and contributions will be lower. The opposite will be true if rates of disability are lower than assumed.

The sensitivity tests for this assumption are an ultimate lower-cost rate per thousand eligible workers of 1.70 for males and 2.40 for females, and an ultimate higher-cost rate of 3.70 for males and 4.40 for females compared with the best estimate assumptions of 2.70 for males and 3.40 for females. Under the lower-cost scenario, the MCR decreases to 8.96 and in the higher cost scenario, it increases to 9.42.

The rates of disability incidence could have been very volatile over the last several years due to the COVID-19 pandemic and due to change in administration that resulted in some delayed reporting of disabilities. However, even in these uncertain times, the rates of disability did not vary significantly from those assumed in recent valuations. As such, we are of the opinion that the range of sensitivity used in AR32, while reasonable, is on the higher end of the probability spectrum.

8.2.8 Higher and lower economic growth

While the AR32 best-estimate assumptions reflect sustained moderate economic growth in the future, there is significant uncertainty and volatility surrounding the economic environment. Many factors could lead to long-term economic growth in Canada being different than assumed under the best-estimate scenario.

Given the high level of uncertainty, AR32 considered two scenarios of higher and lower economic growth. These alternative economic growth scenarios were constructed using a combination of individual assumptions, specifically, the labour market assumptions – i.e., participation rates, unemployment rates, and retirement benefit take-up rates – as well as the real wage growth assumption. Table 113 of AR32 provides details of the changes in these assumptions under the two developed scenarios.

In comparison to the best-estimate scenario, the higher economic growth scenario reflects increased job creation, lower unemployment, higher average retirement take-up age, and higher real-wage increase.

In contrast, the Lower economic growth scenario reflects lower job creation, higher unemployment, lower average retirement take-up age, and lower real-wage increase.

These two scenarios assess the impact on the base CPP’s MCR under alternative future economic growth contexts. This analysis results in an MCR decreasing from 9.19% to 8.88% (under the higher economic growth scenario) and an MCR increasing from 9.19% to 9.58% (under the lower economic growth scenario).

Moreover, these said two scenarios assess the impact on the additional CPP’s FAMCR and SAMCR under alternative future economic growth contexts. Under the higher economic growth scenario, the FAMCR and SAMCR increased to 2.37% and 9.48% respectively (from 2.01% and 8.04%). Under the lower economic growth scenario, the FAMCR and SAMCR decreased to 1.73% and 6.92% respectively.

We believe that this type of alternative scenario, along with shock or disruption scenarios, to be very valuable to the reader, and are of the opinion that additional such scenarios need to be developed and tested.

8.3 Scenario analyses

In addition to the sensitivity tests on individual assumptions, AR32 includes financial information on three alternate scenarios:

• Change in earners and earnings distributions;
• Acute economic event; and
• Climate change.

We commend the OCA for including these scenario analyses as they provide a good indication of some of the risks facing the CPP.

We believe that the illustration of alternative scenarios adds considerable value to the actuarial review. In light of this, we recommend that the OCA consider the use of additional alternative scenarios, possibly incorporating key elements of both economic and demographic assumptions on an internally consistent multi-variable basis.

Recent developments relating to the COVID-19 pandemic underscore the importance of multi-factor sensitivity analyses of the CPP. These developments to date demonstrate the interrelations and high correlation of some of the demographic, economic and investment factors under tail conditions. Although such conditions are impossible to accurately predict, their use in scenario development illustrates the value of such analysis in the assessment of the sustainability of the CPP. They can also be useful in setting the values used in sensitivity testing of the program.

We believe that sensitivity and scenario tests represent valuable tools, if used appropriately. They provide the reader information that may be used to estimate the financial impact of a change in a particular best-estimate assumption. They also point out that, because of the uncertainty involved in any projection of the future, the best-estimate results will not turn into reality, as well as the importance of the key assumptions used.

The reader should be cautious in interpreting the information provided about the likely variations in the assumptions. In particular, the reader should be aware that actual outcomes can range more widely than are shown by the sensitivity and scenario tests and that the likelihood of experiencing results outside the range shown may be even higher than is projected. This is due to the inherent difficulty in predicting not only the key assumptions but also the interrelationship between some of the key assumptions, rather than a defect in the Chief Actuary’s analysis.

8.3.1 Change in earners / earnings distribution

AR32 includes a scenario analysis showing a widening of the earnings gap. The best-estimate scenario assumes a stable distribution of earners and earnings by level over time with the same nominal wage increase applied to all earners independent of their level of earnings.

In the future, the pattern of increase in earnings by level may change as the profile of the labour force evolves. New technologies, automatization, labour shortages and evolving skills requirements are among the factors that could influence earnings distributions, which could lead to a widening or shrinking of the earnings gap between lower and higher earners.

Under the considered scenario, instead of having uniform wage increases for all earners over the projection period, different wage increases are assumed until 2055 based on the level of earnings. After 2055, uniform wage increases in line with the best-estimate assumption are applied.

Two scenarios were developed and tested in this context:

• Scenario 1 (Benefit to Middle Earners): changes in the labor force would result in better work opportunities – i.e., higher wage increases - for middle earners at the expense of higher earners

• Scenario 2 (Benefit to Higher Earners): changes in the labor force would result in better work opportunities – i.e., higher wage increases - for higher earners at the expense of middle earners

For the base CPP, the range of deviation results in an MCR decreasing from 9.19% to 8.98% (under Scenario 1 – benefit to middle earners) and in an MCR increasing from 9.19% to 9.61% (under Scenario 2 – benefit to higher earners). We note that these scenarios (and particularly the benefit to higher earners scenario) result in relatively large changes in the MCR.

As noted in Section 6 of this report, we suggest the OCA pursue more detailed analysis on earnings distributions of CPP contributors and the changes in such distributions over time. In Section 6.5.2, we also recommend that the OCA devote more resources to the assumption of earnings distribution around the average as we believe that the importance of this assumption is likely to grow, particularly as more service is accrued under the additional CPP.

8.3.2 Acute economic event

The purpose of this scenario is to illustrate the impact of an acute, relatively short-term economic event on the MCR of the base CPP. The acute economic event scenario draws on historical shocks and patterns in underlying variables but is not based on one particular period of history.

The acute economic event scenario introduces economic shocks beginning in 2026 and is assumed to unfold over a four-year period.

Specifically:

• Inflation is assumed to reach 7% in 2026, then decline to 4% in 2027, 3% in 2028, and return to the 2% target rate by 2029.

• The unemployment rate is assumed to peak at 11.0% in 2026, then decline to 9.0% in 2027. Further decreases are assumed in 2028 and 2029, with rates of 8.0% and 7.0%, respectively. By 2030, the unemployment rate is assumed to return to the best-estimate ultimate level of 6.1%.

• Real wage growth is assumed to be -4% in 2026, -2% in 2027, and 0% in 2028, before returning to the ultimate best-estimate assumption of 0.8% in 2029.

• Finally, it is assumed that during the acute economic event, only a portion of inflation is reflected in nominal base CPP returns. This results in lower real rates of return compared to the best-estimate assumptions, with projected real returns of -3% in 2026 and -1% in 2027. Positive real returns of 1% and 4% are assumed in 2028 and 2029, respectively. From 2030 onward, all assumptions are set to revert to the best-estimate levels.

Under the acute economic event scenario, the base CPP ultimate MCR increases by 0.36% to 9.55%.

We believe that this type of alternative scenario, along with shock or disruption scenarios, to be very valuable to the reader, and are of the opinion that additional such scenarios need to be developed and tested.

8.3.3 Climate change

The climate change scenarios presented in AR32 are one example of many possible scenarios. We recommend the OCA continue to work on the effects of climate change on relevant assumptions, such as possible decrease in real wages, future contributions, interest rates and equity and other returns. Some of the effects on future returns may have already been reflected in current market expectations and in asset prices. The OCA would have to take into account such market expectations. We hope that future work will be sufficiently credible to allow the OCA to incorporate those effects on the best-estimate assumptions.

We note that the OCA has commented on the uncertainty of the effects of climate change on returns and minimum contributions. And, because of this uncertainty, may not be in a position to incorporate the effect on the best-estimate assumptions. This is understandable, but uncertainty is also present in the development of many other assumptions. We believe that at current times there may be a consensus that the transition to a post climate change will be difficult and will result in lower GDP and returns. We encourage the OCA to express a best-estimate on the transition scenario and its effect on contributions.

8.4 Additional general suggestion and comment

As noted in AR32, the Panel recognizes and appreciates that the CPP is subject to an increasing level of future uncertainty. These uncertainties arise from a range of factors, including escalating trade tensions, environmental risks, geopolitical conflicts, and potential structural shifts in the labour market driven by automation, technological change, and evolving immigration patterns. Such developments are inherently difficult to predict.

Continuous monitoring of these factors is essential to ensure the early identification of emerging trends or structural shifts that may warrant adjustments to the assumptions or methodologies used in the actuarial valuation.

Moreover, we note that the actuarial valuation produces a wide range of outputs and metrics, some of which are explicitly presented in AR32, while others can be readily derived. One example of a metric explicitly illustrated in AR32 is the projected proportion of net investment income required to cover expenditures once contribution income becomes insufficient.

In light of the above, and with the objective of enhancing the reader’s understanding of the potential impact of future uncertainties on the CPP, we suggest that the OCA identify a subset of such metrics that could serve as supplementary warning signs to the readers of the report and provide them a greater sense of how future risks could affect the sustainability of the plan. We further suggest that the OCA consider including an appendix presenting the evolution of these selected metrics under the baseline, sensitivity, and alternative scenarios.

Section 9 – Adjustment factors

As required by the CPP Act, AR32 provides updated factors for adjusting the pensions of retirees who elect to commence their pension before or after age 65.

The methodology for determining the adjustment factors was first determined in Actuarial Study No. 2, produced by the OCA. The methodology was further revised by Actuarial Study No. 18. Both of these Actuarial Studies provide a thorough analysis of the possible methodologies that could be used to determine the actuarial factors and a rationale for choosing the selected methodology. We have reviewed Actuarial Study No. 2 and Actuarial Study No. 18 and concur with their analysis and recommendations. We believe that the OCA has correctly applied the methodology described in the Actuarial Studies in determining the adjustment factors in AR32.

A key consideration in the actuarial studies is that early and late retirement take-up rates are affected by economic and labour market conditions. In particular, one would expect greater early retirement take-up rates during periods of economic downturn and increased unemployment. Conversely, later retirement take-up rates are more likely under a positive economic environment and lower unemployment. We believe that the OCA has appropriately adjusted the labour force participation rates and the average employment earnings to reflect the scenarios of early and late retirement take-up rates.

AR32 confirms the adjustment factors for the base CPP and provides for slightly lower adjustment factors for the additional CPP. We note that this is the first report which has explicitly produced adjustment factors for the additional CPP.

While there are many reasons why the analysis would result in different adjustment factors for the base CPP and the additional CPP, the most obvious reason is that the funding of the base CPP is more highly dependent on investment returns, both because it is currently better funded and because it has a more aggressive future investment policy. As such, the relationship between the adjustment factors for the base CPP and the additional CPP appears reasonable to us.

Opinion on adjustment factors

In our opinion, the methods and assumptions used in AR32 to determine the adjustment factors are reasonable.

Section 10 – Communication of results

In this Section, we address the following question:

10.1 Background

AR32 is a publicly available report. Various supporting information is available on the OSFI website. The supporting working papers for AR32, which provide a comprehensive overview of the methodology and assumptions used in deriving the projections, are provided to all provincial governments and are available to the public upon request. We believe that the information in AR32, together with the other supporting documentation, is sufficient for any reader to obtain a full understanding of the valuation.

10.2 Observations

AR32 contains the main body of the report plus a number of appendices.

The main body of the report includes a section of highlights, which we believe is very instructive for readers who only want to know the results of the valuation. We note that the highlights section includes one page on the main findings, but two pages on the sensitivity of results. We believe that this is appropriate and highlights to readers the importance of the sensitivities.

The remaining parts of the body of the report include the introduction, methodology, assumptions, results, reconciliation and actuarial opinion. We concur with this format for the body of the report. However, we question the amount of detail in the assumptions section. Much of the information in this section is repeated in Appendix B. We suggest that this section of the report could be briefer and only highlight the assumptions themselves (without rationale).

We are very comfortable with the form, style and content in the appendices. We believe that the detail and discussion is appropriate. We do continue to encourage the OCA to include as much information in tables as is possible. For example, on page 195, there is commentary on sensitivities to changes in the net migration rate which could perhaps be better understood if it was included in the table.

AR32 has both a broad audience and a technical audience. The broad audience is mainly interested in the high-level results of the actuarial review. The technical audience of actuaries, economists, demographers, policy analysts, and others is interested in more extensive detail regarding the provisions, data, methods, assumptions, demographic projections and financial projections. The Chief Actuary appropriately recognizes the dual nature of the audience in the format of the report.

Opinion on communication of results

In our opinion, AR32 fairly communicates the results of the work performed by the Chief Actuary and their staff who worked on the actuarial report.

Signatures

This report has been prepared in accordance with accepted actuarial practice in Canada, and is respectfully submitted on April 29, 2026 by

• Stephen Butterfield, FCIA
  Chairperson
• Iyad Hourani, FCIA, FSA
• Michel St. Germain, FCIA, FSA

Appendix A

Review of the financing policy of the Canada Pension Plan

The Panel understands that commenting on the financing policy of the Plan is not part of our mandate. Nevertheless, as actuaries who are very knowledgeable with respect to the financing of the CPP, we believe that we have valuable insights on the risks facing the Plan. Therefore, we have taken the opportunity to add this appendix to our report, even though it is outside of our specific mandate.

The Chief Actuary has prepared the 32nd actuarial report of the CPP, including reporting on the MCR, according to the financing policy adopted by legislation and monitored by the Stewards of the Plan. Such policy was developed in the mid 1990’s when the CPPIB was established and the contribution rates increased.

The financing policy provides for a projection of benefits, investment income, contributions and assets over a long period of 75 years. Such projection is based on best estimate assumptions, without any margins. The intent of the policy is to provide stable contributions and avoid temporary volatility in contributions.

The report includes a section showing the sensitivity effects of variations in experience and changes in assumptions. However, these effects remain based on a 75-year projection period, and generally only have a relatively small impact on the MCR.

We are concerned that the financing risks of the Plan have changed significantly since the 1990s. A significant part of the assets is now invested in illiquid and foreign assets. This may provide additional returns and a lower MCR, but the returns may be more volatile than contemplated when the financing policy was adopted. New risks have emerged or increased such as currency risks of foreign investments, the reliance on leverage by issuing bonds, the coming boom of artificial intelligence, the effects of climate change with a difficult transition, and geopolitical risks. Furthermore, many assumptions have increasingly become more uncertain, such as fertility and immigration.

The sensitivity analysis illustrates those risks and uncertainties, but may be difficult to understand by the decision makers. If those risks are undervalued, there may be an unintended transfer of risk to the next generation, that will be added to the already expected transfer of health costs to this generation.

The Panel suggests that a review of the current financing policy be initiated. Such review may include the length of the projection period and the absence of margins. The Stewards should be asked whether the financing policy should emphasize the stability of contributions at the expense of the possible transfer of costs and risks to the next generation. We recognize that this suggestion may not be within our mandate and would have to be approved by the Stewards with a consensus between provinces and would further require change in legislation.

Appendix B

Response of the Office of the Chief Actuary regarding the recommendations of the independent peer review panel of the 31st CPP Actuarial Report

The independent peer review of the 31st CPP Actuarial Report

The independent peer review of the 31st CPP Actuarial Report as at 31 December 2021 (AR31) took place over the period from November 2022 to June 2023. The review was performed by a team of three independent actuaries – Mr. Stephen Butterfield (FCIA), Mr. Michel St-Germain (FCIA, FSA), and Ms. Jill Wagman (FCIA, FSA). Each panel member has extensive experience in pension actuarial valuation, and Ms. Wagman was a previous reviewer of the CPP Actuarial Report and served as Chair of the panel.

The United Kingdom Government Actuary’s Department (GAD) provided the Office of the Chief Actuary (OCA) with a ranking of the applicants. Based on that ranking and other comments provided by GAD, along with other considerations of the OCA, the Chief Actuary selected the three independent actuaries for the review panel. Once the peer review was completed, GAD provided an opinion on the work done by the reviewers in June 2023. The reviewers’ report and GAD’s opinion are public and can be accessed electronically.

The opinions and recommendations of the peer review panel, and the planned actions and actions undertaken by the Office of the Chief Actuary

The following presents the opinions and recommendations of the AR31 independent peer review panel and the corresponding actions taken or to be taken by the OCA.

1. Professional and statutory requirements

   Opinion and recommendation of the peer review panel:

   Opinion: In our opinion, the work on AR31 complied with all relevant professional standards of practice and statutory requirements.

   Recommendation 1: The report states that all assumptions are “best-estimate” assumptions which we agree is appropriate and consistent with the CPP legislation. However, we recommend that the rationale for selecting “best-estimate” assumptions be made clearer in the report.

   OCA’s response to recommendation 1:

   The rationale for selecting best-estimate assumptions was explained and thus made clearer in section 4.1 of the 32nd CPP Actuarial Report as at 31 December 2024 (AR32). More specifically, the report now includes the following wording:

   “The use of best-estimate assumptions is considered to be the most appropriate choice for projecting the long-term financial state of the CPP given the Plan’s legislation. Under section 113.1 of the Canada Pension Plan, the Chief Actuary must determine the lowest constant contribution rates that, if maintained over the foreseeable future, achieve certain measures for the base and additional Plans. References to the ‘lowest constant rate(s)’ in section 113.1 justify using best-estimate assumptions without any adjustments for adverse deviations.”

   This addition was made specifically to enhance transparency and provide readers with a clearer understanding of the basis for assumptions selection.

2. Assumptions

   Opinion and recommendation of the peer review panel:

   Opinion: In our opinion, the assumptions adopted for use in AR31 are, in the aggregate, reasonable.

   Recommendation 2: In developing actuarial assumptions, the OCA tends to make extensive use of historical information, while noting recent trends and current market conditions. We recommend that the OCA adopt a more forward-looking process for developing actuarial assumptions, and that stronger consideration be given to current market expectations on interest and inflation rates.

   OCA’s response to recommendation 2:

   The OCA acknowledges the importance of considering recent and emerging trends in the development of actuarial assumptions. While historical trends remain an important foundation, our methodology integrates recent trends and forward-looking expectations in most of our assumptions.

   In response to this recommendation and in order to strengthen the transparency of our assumption-setting process for AR32, a structured framework was developed to compile relevant assumptions and assess opportunities for a more forward-looking approach. The framework showed that most of our demographic, economic, investment, and retirement benefit assumptions take into account recent trends and incorporate a forward-looking approach. More specifically, forward-looking expectations are embedded in our assumption-setting process through the analysis of past and future drivers, and the use of judgment in the selection of assumptions both individually and in aggregate.

   Moreover, in building the framework, we enhanced our approach for AR32 by incorporating more market-based indicators for inflation and interest rates, refining the approach to develop retirement take-up rates and analysing the effects of migration on the fertility rate.

   We remain committed to continuously improving our assumption-setting process and to monitoring emerging trends such as climate-related risks, developments in longevity, labour market shifts, geopolitical instability, globalization/de-globalization, demographic shifts, and technological transformations.

   Recommendation 3: We recommend that the OCA increase their use of benchmarking information to support the selection of assumptions. This benchmarking information may come from other pension plans, other government entities, the social security systems of other countries, etc. We acknowledge that there are few benchmarking opportunities that consider the long-time horizon inherent in the valuation of the CPP, but the information may still be useful for the first 20 – 30 years of the projections.

   OCA’s response to recommendation 3:

   The OCA considers relevant external data as benchmarks where available, including information from other international social security systems, government entities, university researchers, external experts’ projections, and Canadian banks and pension plans. Every assumption’s internal documentation has always described the considered benchmarks where used. However, we recognize that a more structured and systematic approach to benchmarking could further strengthen the robustness and transparency of our assumption-setting process.

   To support this objective, we broadened our benchmarking activities across all assumptions. A structured framework was developed to compile relevant benchmark sources and evaluate opportunities for improvement. As a result, we incorporated some additional benchmarks from organizations such as the U.S. Office of the Chief Actuary - Social Security Administration, the United Nations, and the UK Office for National Statistics. As noted by the panel, there are very few benchmarking opportunities for medium to long-term projection periods. In addition, some of them are from international organisations. Caution must be exercised when comparing between countries due to different social, demographic and economic contexts.

   Please refer to Recommendation 9 for the response regarding the investment assumptions.

   Recommendation 4: In developing the assumed rates of mortality, we recommend that consideration be given to enhancing the analysis of the pension level bands to have different pension bands for males and females, given the distribution of pensions is quite different. This analysis may improve the mortality assumption if adopting different bands for men and women. While the results of this further analysis may not result in material differences in cost projections, we recommend that the relationships be reviewed to confirm their materiality.

   OCA’s response to recommendation 4:

   The OCA conducted a study of CPP retirement beneficiaries’ mortality by distinct pension bands (levels) for males and females separately, based on their different distributions of exposures. The results of the analysis showed that the impacts of using sex-distinct pension bands on the benefit projections and minimum contribution rate (MCR) were not material relative to the best-estimate projections using uniform pension bands for both sexes.

   Recommendation 5: While immigration policies are political and thereby volatile, we recommend that the OCA devote more time and resources to understanding past trends and future expectations for immigration to strengthen the rationale for the assumed rates of immigration after 2024. The overall assumptions result in a slowing of the growth in the population over time. It is recommended to consider whether it may be reasonable to expect higher immigration to stem this slowdown in growth and to address the challenges of labour shortages.

   OCA’s response to recommendation 5:

   The OCA dedicates substantial time and resources to developing the net migration assumption, which incorporates immigration and other migration components. This effort was particularly emphasized for AR32 given heightened volatility in immigration trends. In response to the recommendation, we enhanced our internal documentation by including more detailed comparisons with benchmarks and expert views, such as the CPP seminar migration specialist at Immigration, Refugees and Citizenship Canada (IRCC), and expanding discussions relative to previous valuation cycles.

   While these improvements strengthen transparency, immigration assumptions remain highly judgment-based given their political nature. As of AR32, it remains uncertain whether recent high immigration levels will continue for the next 75 years, or whether levels will revert to historical patterns. The best-estimate migration assumptions aim to strike a balance between historical and recent trends. Short-term assumptions reflect Government of Canada immigration targets, while the transition period accounts for short-to-medium labour market pressures and the ageing of the baby boomer population. Over the long term, the OCA is of the view that historical immigration trends are more indicative of future immigration levels. The sensitivity to lower-cost (higher net migration) and higher cost (lower net migration) scenarios in AR32 shows the potential impact of different immigration levels on the base CPP MCR.

   The OCA acknowledges that our overall assumptions result in a slowing growth in the population over time. Decreases in fertility rates are the main driver to this slower growth, and we do not expect them to revert back to higher historical levels. Although immigration can help mitigate short- to medium-term demographic and labour supply challenges, it is not a long-term solution, as it may lead to circular dependency over time. In addition, we analysed higher population growth scenarios and found that sustaining high historical levels would require significant and prolonged immigration policy changes, which we view as premature without supporting evidence. A slowdown in population growth is therefore expected based on the best-estimate assumptions of AR32.

   Recommendation 6: We recommend that the OCA devote more time to better develop the assumption for Non-Permanent Residents. Prior to the COVID-19 pandemic, the number of Non-Permanent Residents increased substantially and we recommend that further analysis be conducted in order to strengthen the rationale for the assumption that the net number of Non-Permanent Residents will remain static in the future. We also recommend that the OCA better understand how Non-Permanent Residents will affect future immigration, including the number of immigrants and the characteristics of future immigrants.

   OCA’s response to recommendation 6:

   Due to unprecedented levels of non-permanent residents (NPR), the OCA dedicated significant effort to developing the NPR assumption for AR32. The assumption was set to account for the recent volatility, aligns with short-term Government of Canada migration targets, and incorporates trends toward an ultimate assumption which considers the historical progression of NPR, as well as labour force considerations. Additionally, in developing this assumption, the OCA considered how the two largest NPR groups in recent years (international students and temporary foreign workers) may impact family characteristics of future immigrants.

   Beyond strengthening the rationale in our internal documentation, we introduced methodological improvements to improve how NPR are projected. To better capture current and future dynamics, NPR are now projected separately from the rest of the population, and are expressed as a percentage of the population. In addition, their demographic composition is assumed to remain constant over time. This approach makes the NPR projections more dynamic and provides a more accurate representation of NPR impacts on CPP contributions and benefits.

   We remain committed to refining our assumptions and methodologies and will continue to monitor NPR trends and their implications for future demographic and labour force projections. It is however important to note that future potential enhancements are highly dependent on data availability.

   Recommendation 7: We recommend that more thought be given to the assumed workforce participation rates for older workers. Current and future socio-economic conditions may result in more older workers remaining in the workforce longer than assumed. This is supported by recent trends in the participation rates, comparison of Canadian participation rates vs. other similar countries, the global trends toward increasing the retirement age, and the effect of labour shortages.

   OCA’s response to recommendation 7:

   As recommended, in the development of labour force participation rates for AR32, special attention was devoted to the rates of older workers. Participation rates were developed by age group, and an analysis of historical trends, future drivers and international comparison was performed. For older age cohorts, participation rates are expected to increase due to several factors, including but not limited to continued trends toward later retirement which can be attributed to inadequate retirement savings, increases in life expectancy and increases in the cost of living as well as continued cohort effects of women with stronger labour force attachment and increased flexibility in work arrangements for some workers. This approach is consistent with the methodology applied for AR31. For AR32, ultimate participation rate assumptions for older age groups in Canada were increased slightly relative the CPP31 assumptions.

   Recommendation 8: We recommend that the report provide greater clarity on the rationale for basing the assumed future investment returns on the strategic investment policy rather than the reference investment policy as investment theory would suggest that two investment policies with the same risk levels should have the same expected returns.

   OCA’s response to recommendation 8:

   Despite the strategic and reference portfolios sharing the same level of expected risk, they can have different expected returns. This is due to different asset mixes providing different levels of diversification. Modern portfolio theory emphasizes that diversification – by combining assets with low or negative correlations – can reduce portfolio volatility without lowering portfolio return. By diversifying investments across multiple asset classes, investors can mitigate the impact of individual asset fluctuations, creating a more efficient portfolio that achieves a better risk-return trade-off.

   The foundation of the Canada Pension Plan Investment Board (CPPIB)’s investment strategy is a two-asset portfolio called the “Reference Portfolio”^{Footnote 1}. This portfolio sets out how much risk the CPPIB is willing to take in accordance with its mandate. The Reference Portfolio comprises a global equity benchmark and a Canadian government nominal bonds benchmark. The higher the equity share, the higher the associated risk. In its Strategic Portfolios, the CPPIB diversifies its holdings and thus sources of return, while respecting the risk level of the base and additional CPP Reference Portfolios. This in turn leads to higher expected returns at the same level of risk.

   The OCA defines risk/return assumptions for the asset classes that correspond to those used by the CPPIB in the Strategic Portfolio as this represents the CPPIB’s strategy for making long-term asset allocations. It is also consistent with their long-term expectations for allocating assets regarding geographic diversification.

   Recommendation 9: We recommend that the OCA continue to seek out more information on the development of assumed discount rates for other large pension plans, including the assumed returns by asset class and taking into account the differences in margins for adverse deviations included in the assumptions, investment expenses and value added by active management.

   OCA’s response to recommendation 9:

   For the AR32, we reaffirmed our benchmarking process, recognizing the importance it plays in setting our investment assumptions. The OCA internally conducts extensive benchmarking on several assumptions with various pension plans, including the assumed real rates of return of other major Canadian pension plans. As well, we benchmark asset class and portfolios return assumptions against those of investment managers and investment or actuarial consultants. We gather our benchmarking information from both public and private sources.

   In response to the peer review panel's recommendation, the OCA has enhanced the internal documentation to include its longstanding benchmarking practices. Taking into consideration the limitations that benchmarking assumptions involves, namely an uncertainty around the contextual relevance, potential time horizon mismatches, and data quality and transparency, we nonetheless verified that our assumptions were within observed ranges. This supports the credibility and relevance of the long-term expectations.

   For AR32, the OCA reviewed the investment expense assumption and determined that no changes were necessary. Although passive investment expense data remains limited for certain asset classes, benchmarking against peer plans confirms that our assumption is reasonable. With respect to active management, the limited experience and variability in historical results make the data insufficient to assume consistent added value. Nevertheless, future active management expenses are assumed to be offset by equivalent value-added returns, in line with guidance from the Canadian Institute of Actuaries.

   Recommendation 10: We recommend that the rationale for the gradual decrease in the risk characteristics of the investment portfolio be more fully justified. We note that we generally agree with the assumption that the investment portfolio will gradually be de-risked, but the timing and extent of such de-risking is unclear and not sufficiently justified. We note also a lack of formal policies in place to help the Chief Actuary further justify this assumption.

   OCA’s response to recommendation 10:

   The CPPIB is responsible for setting the risk measures for the Plan’s investment in accordance with the Act and its governance framework. They determine the amount of investment risk taken and how the portfolio is invested, and we develop our de-risking approach in accordance with the principles of their framework.

   As the base CPP matures, the ratio of contributors to beneficiaries is projected to decline, and contributions are expected to become insufficient to cover all expenditures starting in 2031. Consequently, reliance on investment income will increase, making the base CPP more sensitive to investment experience. To reflect this growing reliance, we have assumed that the level of investment risk will gradually decrease over time.

   The methodology for setting the ultimate asset mix for the base CPP involves projecting a future reference portfolio in terms of its equity/debt ratio and constructing a portfolio with the same risk level (volatility) as that reference portfolio. This approach ensures consistency with CPPIB’s risk framework while accommodating the need for lower volatility as investment income becomes a critical source of funding.

   For AR32, we discussed our de-risking assumption with CPPIB, and they validated the proposed path, confirming that it aligns with their principles. While formal policies governing the timing and extent of de-risking are not in place, our rationale is based on the projected shift in revenue sources and the need to manage volatility as investment income becomes a critical component of funding benefits.

   Recommendation 11: We note that disability incidence due to mental health related issues appears to be increasing. While the definition of disability in the CPP may preclude certain mental health related claims, in conjunction with the implementation of the government of Canada’s Disability Inclusion Action Plan’s First Pillar – Financial Security, we recommend that this area be monitored closely to determine whether a corresponding change in disability incidence assumptions is warranted for the purpose of the valuation of the CPP.

   OCA’s response to recommendation 11:

   AR32 valuation assumptions are developed reflecting provisions of the Canada Pension Plan as at 31 December 2024. Any hypothetical future provision change occurring because of the implementation of the Government of Canada’s Disability Inclusion Action Plan or other potential cause are not considered within the scope of the triennial valuation.

   When developing our disability incidence rate assumptions, we look at trends in disability by cause. This analysis indicates that the mental health disability incidence rate has remained relatively stable over time. Moreover, mental health disability cases are observed primarily among younger individuals while the aggregate CPP disability incidence rate is mostly driven by occurrences at older ages. Thus, no adjustment related specifically to mental health was implemented in the AR32 disability incidence assumption. However, the OCA will continue to monitor factors affecting the disability incidence rates, including trends in disability by cause.

   Recommendation 12: We recommend that the OCA devote more resources to the assumption of earnings distribution around the average as the importance of this assumption is likely to grow as more service is accrued under the additional CPP.

   OCA’s response to recommendation 12:

   As recommended, additional resources were devoted to looking into the earnings distribution and its possible impacts on contribution rates during the intervaluation period. However, it wasn’t possible to conduct a fulsome analysis due to data limitations (capped employment earnings per employer at $99,999). The best-estimate assumption continues to assume a stable earnings distribution over the projection period. However, similar to AR31, it was decided to illustrate the sensitivity to this assumption in a scenario analysis section. We will continue to work with the data providers to improve the data, which may allow us to do further studies on the earnings distribution in the future and improve our assumption-setting process.

3. Sensitivity tests and scenario analyses

   Recommendations of the peer review panel:

   Recommendation 13: We recommend that the information for each sensitivity test not only include the effect on the MCR, FAMCR and SAMCR, but also disclose the extent of the change in assumption that would result in the MCR, FAMCR and SAMCR exceeding the legislated contribution rates. For example, what real wage growth would have to occur for the MCR to exceed the legislated contribution rate for the base CPP?

   OCA’s response to recommendation 13:

   This recommendation was considered but it was decided for AR32 that we would not add the above-described sensitivities. The goal of the sensitivity section of the CPP actuarial report is to show the impacts of plausible deviations from best-estimate assumptions that are relatively easy to understand and communicate. The results of the suggested sensitivity tests depend on the starting point of the MCRs and may yield results that are implausible or hard to interpret or put into context. In addition, the range of results would vary from one report to the next based on the MCR level. Our preference is to have consistency through time when communicating a range of potential outcomes. We will continue to assess the most effective ways to illustrate uncertainty of results in future reports.

   Recommendation 14: We recommend that the OCA provide more information in the report with respect to the overall risk that the legislated contribution rates will be insufficient to support the benefits. While the individual sensitivity information is appropriate and valuable, it may result in the reader having an overly confident opinion of the financial status of the CPP since most of the individual sensitivities do not result in the legislated contribution rates being insufficient. Some commentary that a combination of some adverse scenarios for unrelated assumptions is very possible and in combination they would result in insufficient legislated contribution rates would be helpful for readers to better appreciate the overall risk. The report could illustrate examples of such combinations resulting in insufficient contribution rates.

   OCA’s response to recommendation 14:

   The above recommendation was considered, and we believe that the scenarios provided in AR32 fulfill the recommendation.

   The issue with combining individual sensitivity tests is the difficulty in building a cohesive narrative. This is the reason why for every valuation, we include a section on scenario analysis that consists of plausible scenarios that deviate from the best-estimate scenario which combine a number of assumptions. The AR32 includes the following scenarios: higher/lower economic growth, change in earners and earnings distributions, an acute economic event, and climate change.

   In addition, the approach proposed is to illustrate what combinations would lead to insufficient contributions rates. Similar to the comments in Recommendation 13, the combinations would depend on the starting MCRs, which may create results that are implausible or hard to interpret or put into context, and may lead to inconsistent messaging from one report to the next. We will continue exploring the most effective approaches to convey result uncertainty in future reports.

   Recommendation 15: We recommend that the OCA increase the amount of resources given to consideration of future significant changes in the socio-economic outlook. Such future changes may be reflected in the actual assumptions or in sensitivity analysis. The valuation reflects a future world and a country that will not change significantly, which may not be the case. Given the long-term time horizon for the valuation, we recommend more emphasis to be placed on how the CPP may be affected by significant changes in the socio-economic environment.

   OCA’s response to recommendation 15:

   We believe that the uncertainty of results section of the report fulfills this recommendation. The OCA acknowledges that given the long-term time horizon for the valuation, there could be significant changes in the socio-economic environment. The report necessitates best-estimate to be used for the main analysis and the uncertainty of results section provides a range of results based on individual sensitivity tests and scenario analysis relative to the baseline scenario. At each report, the scenarios are reviewed for relevance and emerging risks are considered. There is a high level of uncertainty when projecting over such a long timeframe and the uncertainty of results section is meant to illustrate some potential risks while still maintaining that the selected assumptions in the baseline report are best- estimate given the historical context as well as the current and projected risk environment.

   In response to the recommendation to place greater emphasis on how the CPP may be affected by significant changes in the socio-economic environment, resources were allocated to develop a set of plausible scenarios. These scenarios are designed to illustrate the potential impacts of various socio-economic shifts on the CPP’s financial sustainability. Some scenarios explicitly identify drivers such as climate change transition risks and changes in the earnings distribution. Others, such as higher or lower economic growth and an acute economic event, focus on the outcomes of macroeconomic changes without specifying a single cause.

   In our risk analyses, a wide range of scenarios were considered. While the underlying causes may differ, the impacts were consistently modelled through key assumptions, including real wage growth, unemployment rates, inflation, and investment returns. By including scenarios that focus on outcomes rather than the catalyzing event, the analyses allow readers to understand how various types of potential socio-economic disruptions could influence critical aspects of the CPP, regardless of the source of the disruption.

   Recommendation 16: We recommend that the OCA monitors the future developments of climate change scenarios, in particular from credible sources such as the IAA, the CIA, the Bank of Canada and OSFI. The climate change scenarios presented in AR31 are one example of other possible scenarios. We recommend that the OCA continues to work on the effects of climate change on relevant assumptions, such as possible decreases in real wages, future contributions, interest rates and equity and other returns. Some of the effects on future returns may have already been reflected in current market expectations and in asset prices. The OCA would have to take into account such market expectations. We hope that future work will be sufficiently credible to allow the OCA to incorporate those effects in the best estimate assumptions.

   OCA’s response to recommendation 16:

   Since AR31, the OCA has continued to monitor developments in climate change and how it may affect the sustainability of the CPP. For example, the OCA has created internal peer groups of "Subject Matter Experts", one of which is dedicated to continually researching and analyzing the impacts of climate change on the assumption-setting process. During the intervaluation period, the climate change subject matter expert group conducted extensive research that led to the publication of Actuarial study No. 24 - Analysis of Climate Change Impact on the Office of the Chief Actuary’s Assumption-Setting Process.

   Although the OCA recognizes the importance of understanding and integrating the potential impacts of climate change into our long-term projections, the actuarial study highlights that there is still a lot of uncertainty regarding the direction and magnitude of potential impacts from climate change, and the risk is constantly evolving. In addition, research and data to quantify the full impacts of climate change on the demographic, economic, and investment environments are incomplete and, in certain cases, somewhat conflicting. The OCA is therefore not ready to incorporate the potential impacts from climate change explicitly in the best-estimate assumptions and continues to believe that scenario analysis is an appropriate approach for understanding and illustrating this risk.

   AR32 therefore includes a section illustrating the potential impact of climate change on the base CPP MCR. The framework was enhanced relative to the one used in AR31 to integrate factors such as climate change impacts on fixed income returns, as well as GDP impacts by different markets. In addition, the hypothetical climate scenarios presented in AR32 were updated based on more recently available information. Finally, the illustrative scenarios are no longer focused solely on downside risk scenarios.

   We agree that credible sources such as the IAA, CIA, Bank of Canada, and OSFI provide valuable insights and scenario frameworks that can inform our work. For AR32, following a thorough analysis of publicly available information, the OCA decided to use a subset of scenarios (Phase V) from the Network of Central Banks and Supervisors for Greening the Financial System (NGFS). The NGFS publishes a variety of climate scenarios covering a wide range of physical and transition risks, which are well recognized by the financial industry.

4. Communication of results

   Opinion and recommendation of the peer review panel:

   Opinion: In our opinion, AR31 fairly communicates the results of the work performed by the Chief Actuary and their staff who worked on the actuarial report.

   Recommendation 17: We recommend that the OCA continue to work towards a more user-friendly format for displaying the valuation results, including greater use of graphs and graphics.

   OCA’s response to recommendation 17:

   The OCA remains committed to enhancing the readability and overall user experience of the report. Opportunities to incorporate more graphs and charts will be explored. Time permitting, the OCA intends to redesign the CPP report, which is expected to significantly improve and simplify the user’s experience.