It is one of the two major components of Canada's public retirement income system, the other being Old Age Security (OAS).
As a result, major changes to the CPP (including those that alter how benefits are calculated) require the approval of at least seven Canadian provinces representing at least two-thirds of the country's population.
[5]: §3(1) Any province may establish an additional or supplementary plan anytime, as under section 94A of the Canadian Constitution, pensions are a provincial responsibility.
CPPI also regularly reports on its investment performance and activities and is subject to oversight by the federal and provincial governments.
[6] The Liberal government of Prime Minister Lester B. Pearson established the Canadian Pension Plan in 1965.
The second ceiling is calculated "in accordance with the CPP legislation and [taking] into account the growth in average weekly wages and salaries in Canada".
Currently, this is equal to 25% of the average earnings on which CPP contributions were made over the entire working life of a contributor from age 18 to 65 in constant dollars.
If an application for disability pension is denied, an appeal can be made for reconsideration, and then to the Social Security Tribunal.
By the mid-1990s, the 3.6% contribution rate was not sufficient to keep up with Canada's aging population,[12] and it was concluded that the "pay-as-you-go" structure would lead to excessively high contribution rates within about 20 years, due to Canada's changing demographics, increased life expectancy, a changing economy, benefit improvements, and increased usage of disability benefits (all referenced in the Chief Actuary's study of April 2007, noted above).
As a part of the review, the federal government actively conducted consultations with the Canadian public to solicit suggestions, recommendations, and proposals on how the CPP could be restructured to achieve sustainability again.
[citation needed] As a result of this public consultation process and internal review, the following key changes were proposed and jointly approved by the federal and provincial governments in 1997: As of 2019, the prescribed employee contribution rate was 4.95% of a salaried worker's gross employment income between $3,500 and $57,400, to a maximum contribution of $2,668.
[13] The federal government and its provincial counterparts moved to enhance the Canada Pension Plan to provide working Canadians with more income in retirement.
[14] These changes were principally motivated by the declining share of the workforce that was covered by an employer defined-benefit pension plan, which had fallen from 48% of men in 1971 to 25% by 2011.
Workers earning the 2016 maximum covered wage of $54,900 a year would receive an additional $4,390 annually (approximately $365.83 monthly).
[14] To finance the expanded pensions and maintain the soundness of the plan, contributions to the CPP by workers and their employers will each rise 1% from current levels to 5.95% over the existing band of covered earnings.
In other words, assets held in the CPP fund are by themselves insufficient to pay for all future benefits accrued to date but sufficient to prevent contributions from rising any further.
A study published in April 2007 by the CPP's chief actuary showed that this type of funding method is "robust and appropriate" given reasonable assumptions about future conditions.
It reports quarterly on its performance, has a professional management team to oversee the operation of various aspects of the CPP reserve fund and to plan changes in direction, and a board of directors that is accountable to but independent from the federal government.
Closely mirroring the CPP, the QPP is a contributory earnings-related pension plan that pays benefits in the event of the earner becoming disabled, retiring, or dying.