Canada's national pension plan posted its best annual return in its history last year and is now worth more than $260 billion.

The Canada Pension Plan Investment Board, which manages the assets not needed to pay current benefits for 18 million Canadian workers and retirees, saw the fund's assets swell to $264.6 billion at the end of its fiscal year in March. That's up $45.5 billion from $219.1 billion at the same time last year.

Within that, almost $5 billion came from contributions — workers and employers putting money into the fund, which outstripped the amount coming out. The fund expects it will have more money coming in from contributions than it has to pay out in benefits until 2022, when a demographic bubble of retirees is expected to reverse that.

But the majority of the increase came from investment returns.

"The CPP fund generated exceptional returns this year, achieving both the highest one-year return and annual investment income since our inception," CPP's president and CEO Mark Wiseman said.

Annualized over the past 10 years, CPP has now managed to crank out an average gain of eight per cent per year. That's better than the performance of a passive collection of assets that the pension plan uses for its benchmark.

After factoring inflation, that's a 10-year average annual return of 6.2 per cent.

Since 1999, about a year after legislation aimed at overhauling the CPP was enacted, roughly 57 per cent or $151 billion of the fund's net worth has come from investment returns, not contributions from plan members.

The CPPIB said in a release Thursday that virtually all asset classes saw gains, including stocks, bonds, private assets and real estate holdings. And the fund saw strong gains both on what it owns in Canada, and elsewhere in the world, with developed and developing market holdings performing well.

The weaker loonie was a big part of that, as a cheaper currency boosts the value of things the fund owns outside of Canada.

"The benefit of the fund's diversification across currencies also played a role in its returns, as the Canadian dollar fell against certain currencies, including the U.S. dollar," the board said.

The Office of the Chief Actuary recently deemed the CPP "actuarially sound" for the next 75 years, which means it is deemed to be financially sustainable for that long at its current rate of contributions.

Benjamin Tal, deputy chief economist at CIBC, says with the large bulk of baby boomers soon to retire, good returns are crucial.

"With interest rates so low, they have no choice but to increase their risk profile so we see a situation in which they go to infrastructure, private companies," Tal said.

He said it is smart of the CPPIB to invest more money overseas and to buy real estate and other assets.

"They have no choice but to be aggressive in getting a good return. Their time horizon is very long, so they can afford to take these risks," he said.