This was originally a commented I wrote in response to: http://michaeljamesmoney.blogspot.com/2012/02/tax-fairness-would-decimate-old-age.html
CPP is Canada’s public pension plan. When it was introduced, it was paid from general revenues. This “pay-as-you-go” basis means the first recipients may have only paid in for a couple months, before retiring and receiving a full pension for life. Current recipients receive a pension that is funded from general tax revenue.
The Government of Canada realized in 1998 that there would be a problem due to demographics and the large number of baby boomers who will all be looking to retire around the same time. At the time, the CPP carried a small surplus and could be considered about 7% funded. The government increased the contribution rate to 9.9% to improve the stability of the fund. By the end of 2009, CPP was 14.5% funded, with a goal to improve that level to 20% funded by 2020. (http://www.hrsdc.gc.ca/eng/oas-cpp/reports/2010/page06.shtml)
Starting in 2021, current benefits will be augmented by investment returns from the CPP investment assets. This is intended to create a steady state, where demands on current government revenues remain stable despite increasing payment requirements. After the “hump” of baby boomer retirees, the funding level of the CPP is projected to rise to 30% by 2070.
This seems to me to be a fair balance between making the CPP sustainable, but also not penalizing current taxpayers in favour of current CPP recipients. It’s encouraging to note that any additional benefits added to CPP must be fully funded. Although the entire pension isn’t fully funded, it should remain viable despite demographic fluctuations. OAS doesn’t have that benefit.