A few days ago I raise the topic of a Canadian sovereign wealth fund. This could be similar to the CPP Fund, only funded through government borrowing rather than payroll tax contributions. At any rate, this led me to do a bit of digging on the CPP. National Bank has a research note from 2023 talking about how, by some measures, Canada was in a very good fiscal position. According to the IMF''s favoured measure of net debt, Canada had a public sector net debt of only 14% of GDP, much lower than G7 peers. This is largely due to the significant public assets, such as the CPP Fund. (Note: I agree that the CPP should not be seen as a 'piggy bank' to justify increase government borrowing or to fund spending, but rather that it represents a funding of public sector pensions that in most countries are unfunded/pay as you go). It's an interesting bit of research. Canada is not that far off from Norway in terms of net public debt. We are closer to being in Norway's position than the US's (on a % of GDP basis)!
This thenled to me think a bit more about how the CPP will eventually represent a very significant portion of GDP over time. By 2050, Canada's real GDP is projected to grow to about $5B, or $8.2B in nominal terms. Meanwhile, CPP Investments in their
2025 report projects the fund to grow to $3.5T in assets by 2050, from $0.714T in 2025. That would be around 43% of GDP by that time. And course, CPP Investments has tended to be pretty conservative in their projections of future assets over time.
That made me wonder just how conservative they had been. I took a look at the
2015 report. At that time, they projected 2025 assets to be in the low $400B range by 2025, and that it wouldn't reach its current $700B range until the late 2030s.
Let's go back even further and take a look at the
2005 report, back when CPPIB was just getting started (thanks Chretien/Martin!)...
At that point, the Fund projected having $200B in assets by 2015 (vs $264B actually reached).
Given that track record of 'sandbagging'/conservatism, that suggests the CPP may actually by underestimating 2050 assets by around a factor of 2, and actual assets might end up closer to $6.5-7T, or 82% of GDP. It certainly leads to some serious questions about at what point does the CPP so much more in assets than required to meet benefits obligations that benefits could be increased or (my preference) contributions decreased to what is actually actuarially fair. I say that because the current contribution rate is higher than it would need to be to pay for the current level of benefits, it's just that current workers are overcontributing to make the fund sustainable and repair previous unsound management of the pension scheme up to the '90s.
Anyway, just a bit of geekery that I thought I would share.
