Introduction to CPPIB€¦ · • Once mature, theCPP Enhancementwill increase the maximum CPP retirement pension by about 50 percent to around $20,000 in today’s dollar terms •

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CPPIBCopyright © 2019. Canada Pension Plan Investment Board. All rights reserved.

Introduction to CPPIBOctober 2019


1. Goals of session

2. History

3. Myths

4. What Canadians should know

5. CPPIB today

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OVERVIEW

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Financial Stability for Retired Canadians

Multi‐Source Retirement Income System

Defined benefit or defined contribution pensions; Group RRSPs; PRPPs

Workplace Savings

Funding source

Employees &Some Employers

Tax assisted investment vehicles (RRSPs, TFSAs)

Private Savings

Individuals

Means tested programs

OAS & GIS

Tax Revenue

Compulsory contributions by employers and employees

CPP

Employees &Employers

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CPP ‐ A key pillar of the Canadian retirement system


A brief history of the CPP

CPP createdJanuary 1966

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1960 1970 1980 1990 2000 2010

Demographic Challenges

1969 ‐ Birth Control pill legalized in Canada

CPP Reform Debate

1995 ‐ Chief Actuary Report on CPPfinances

2015 – Year CPP would have been depleted

without reform

CPPIB createdApril 1998

CPP benefits continually increased, with no corresponding increase in contributions

CPP benefits and contributions stable

CPP reform agreement1997

Economic and Fiscal Challenges

Contributions increased

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Demographic challenges facing CPP

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Retirees Workers

1965

2005

2025

2055

Reasons for drastic change in ratio

Lower birth rates

Increased life expectancy

Insufficient immigration


CPP reform debate

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Chief Actuary reported that if the Fund continued to function at same level, it would be depleted by 2015. Contributions would automatically increase to 13.9% by 2030.

Catalyst: 1995 Chief Actuary Report

Response: CPP Reform debate

Politicians of all political stripes and levels of government came together to reach an agreement and overcome these challenges, averting the CPP Fund from inevitable disaster.

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Myths around CPP

• 66% of Canadians are either unsure or agree that the CPP will be out of money by the time they retire

• In addition, 56% of Canadians are worried that the CPP Funds are being raided by government

• An unwarranted lack of confidence, given the Chief Actuary’s assessment and the fact that CPPIB operates at arm’s length from government

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Financial Literacy

• Maximum CPP payment amount in 2019 for someone retiring at 65 was $13,854.96

• Average amount for new beneficiaries was $8,203.80 per year

• Important Canadians aware of this so they can know where they stand with regard to their retirement goals

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Latest CPP Reform

• Federal government and provinces reached deal in 2016 to expand CPP

• Once mature, the CPP Enhancement will increase the maximum CPP retirement pension by about 50 percent to around $20,000 in today’s dollar terms

• The enhancement will be fully funded and designed so each generation pays for its own benefits

• The gradual 7‐year phase‐in began on January 1, 2019

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CPPIBCopyright © 2019. Canada Pension Plan Investment Board. All rights reserved. 10

• Today CPPIB manages more than $400 billion

• More than 1,600 employees

• Offices include Toronto, London, Hong Kong, New York and Mumbai

• Assets range from stocks and bonds to real estate and infrastructure

• Ranked as world’s 8th largest pension fund

• 10.5% Net Annualized Return as of June 30, 2019

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��

0

100

200

300

400

500

Q1 F2016 Q1 F2017 Q1 F2018

Q1 F2019 Q1 F2020

$400.6� � ��

BILLION

(C$ billions)

��GROWTH

11CPPIBCopyright © 2019. Canada Pension Plan Investment Board. All rights reserved.


��LONGER-TERM PERFORMANCE


�� ! �

$152.7 �� ! � ��"��

BILLION10.5%

�� ! �

$235.6 �� ! � ��"��

BILLION10.5%

5-year

10-year

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Sustainability

• Every three years, the Office of the Chief Actuary independently reviews the financial state of the CPP

• Life expectancy, rising number of pensioners and the investment returns of the CPP Fund are all taken into account

• The Chief Actuary’s latest report confirms the CPP is financially sustainable for the next 75 years

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75+ DURATION OF CPP SUSTAINABLITY

YEARS


Ensuring CPPIB’s long‐term success

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CPPIB pursues an investment strategy designed to maximize returns for the best interest of all CPP contributors and beneficiaries.

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Governance

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CPPIB’s governance structure is globally recognized as a best practice for national pension plans. We operate at arm’s length from government and our management team reports to an independent, professional board of directors. Our mandate is to invest the assets of the CPP Fund to achieve a maximum rate of return without undue risk of loss. In achieving this, CPPIB is required to take into account the factors that might affect the funding of the Canada Pension Plan, and to manage the Fund in the best interests of contributors and beneficiaries.

AAA Rating

“… Well developed corporate governance and risk management frameworks; and an experienced management team.”

‐ Standard & Poor’s

International Recognition for Governance


A professional investment management organization

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Arm’s‐length governance structure

Segregated assets

Highly‐qualified board of directors

Investment‐only mandate

Transparency & accountability

Professional investment team

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What approach should CPPIB follow?What approach should CPPIB follow?

Option 1

Low‐cost, low complexity,low controversy

Option 1

Low‐cost, low complexity,low controversy

Valid passive investment option

Option 2

“Value‐added” approach

Option 2

“Value‐added” approach

More active investing to achieve higher risk‐adjusted

returns

We have selected this option

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Two strategic options


Our active management strategy is built on our comparative advantages

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Size and Scaleof the CPP Fund

STRUCTURAL ADVANTAGES

Certainty ofCPP Fund Assets

Long‐Term Investment Horizon

Talent andHigh Performance

Culture

ACTIVE MANAGEMENT Smart Partnering

Total Portfolio Approach

DEVELOPED ADVANTAGES

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Long investment horizon

• A long investment horizon gives us advantages over other investors, shaping our perspective on opportunities, risk and resilience through turbulent markets

• By investing for the next quarter century – not the next quarter – we can undertake and profit from investments that others cannot

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Infrastructure Investments

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��ASSET MIX



��GLOBAL DIVERSIFICATION BY REGION


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TORONTO

NEW YORK

LONDON

LUXEMBOURG

SÃO PAULO

MUMBAI

HONG KONG

SYDNEY

� �� #� �$��%�#�� & �� '�� (��! � ��##�� $�$��#� �� #�� $)��$� �� *��*��! +

SAN FRANCISCO

EXPANDING OUR GLOBAL FOOTPRINT


CPPIBCopyright © 2019. Canada Pension Plan Investment Board. All rights reserved. 24

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Documents

Introduction to CPPIB€¦ · • Once mature, theCPP Enhancementwill increase the maximum CPP retirement pension by about 50 percent to around $20,000 in today’s dollar terms •