Opening Remarks by Chief Actuary Assia Billig, Office of the Chief Actuary, OSFI at the Canada Pension Plan (CPP) Virtual Seminar
Assia Billig, Chief Actuary, OCA, OSFI
Virtual Seminar on Demographic, Economic, and Investment Perspectives for Canada Years: 2021 to 2050
13-15-17 September 2021
Good afternoon, everyone. Welcome to the CPP Seminar, a virtual event for the first time. I hope that you, your families, and friends are all keeping well during these continuing uncertain and trying times. As many, if not all of you know, the triennial CPP Seminar has always been held in person. It is now being held virtually of course due to the pandemic. Although the reason for transitioning to a virtual seminar was unfortunate, the positive side is that more of you were able to attend as a result. There are many people attending online from various organizations and provincial, territorial, and federal government departments, including the Department of Employment and Social Development Canada and the Department of Finance. Thank you all for joining us.
As you know, I am Assia Billig, Chief Actuary. The Office of the Chief Actuary (OCA) is responsible for conducting the statutory actuarial valuations of the Canada Pension Plan, Old Age Security program, Canada Student Financial Assistance Program, Employment Insurance Programs, and the federal public sector pension plans (for the Canadian Forces, Royal Canadian Mounted Police, Members of Parliament, Federally Appointed Judges, and the Public Service). As well, for the purpose of the Public Accounts, the office conducts annual actuarial valuations on the federal public sector pension and insurance plans and benefits paid to veterans. The OCA is part of the Office of the Superintendent of Financial Institutions Canada (OSFI); however, the OCA’s role is quite distinct from the rest of OSFI.
My team and I strongly believe in the importance of consulting with experts in the fields of demography, economics, and investments before setting the assumptions for our actuarial reports. Our CPP seminars are one of the key ways by which we obtain diverse expert perspectives to assist us with our assumptions setting for the CPP actuarial reports. Today’s CPP seminar, the ninth such seminar, is held specifically for the purpose of obtaining expert input that will assist us in developing the assumptions for the 31st CPP Actuarial Report as at December 31, 2021. The 31st Report will be the second regular triennial report to provide projections for both the base and additional components of the CPP. The different financing approaches of the two CPP components result is demographic, economic and investment trends impacting the financial status of these components in different ways. As a result, the importance of sound actuarial assumptions cannot be underestimated.
The actuarial reports on the CPP are subject to regular external, independent peer reviews, which are endorsed by the federal, provincial, and territorial finance ministers. The reviews provide a critically important role in the CPP valuation process: they ensure that the credibility of the information presented in the CPP actuarial reports is indisputable.
Upon the advice of the Auditor General, the United Kingdom’s Government Actuary’s Department (or GAD), which is internationally renowned for its work and research in the field of social security, has assisted with the peer review process of all the triennial reports since the 21st.
In the most recent independent peer review of the 30th CPP Actuarial Report, the review panel found that the work performed by the OCA on the Report complied with all relevant professional standards of practice and statutory requirements. The panel also concluded that the methods and assumptions used in that report were all reasonable, confirming that the legislated contribution rates are sufficient to finance the CPP over the long term. The panel’s report includes nine recommendations dealing with various aspects of the valuation, reporting, internal training, and model documentation.
To ensure ongoing high quality, our office will continue to commission external peer reviews to ensure that our CPP actuarial reports meet professional standards of practice and provide sound actuarial advice to Members of Parliament and the Canadian public.
The projections for the purpose of the actuarial valuation of the CPP are based on the projections of revenues (contributions and investment earnings) and expenditures (benefits and expenses). While this may sound simple, in reality it is an exercise that requires a multitude of assumptions about the future state of Canada.
The first step consists of projecting the population for Canada less Québec based on demographic assumptions for fertility, mortality, and migration.
To determine contributions to the Plan, we apply assumed labour force participation and employment rates to the projected population, and project future employment earnings, which requires assumptions about different factors including wage increases and an earnings distribution. Investment income is projected based on the existing base and additional CPP assets, projected net cash flows (contributions less expenditures), and the assumptions regarding the future asset mixes and rates of return.
To project benefits paid to new beneficiaries requires assumptions regarding retirement, disability, and death as applied to eligible benefit populations. The projection of total benefits, including benefits already in pay at the valuation date, requires further assumptions. Lastly, operating expenses, excluding CPP Investments operating expenses, are projected by considering the historical and projected relationship between expenses and total employment earnings, while CPP Investments operating expenses are considered in the determination of the rates of return.
It is important, when developing all the needed demographic, economic, and investment assumptions, to keep a long-term view and not be swayed by short-term trends. However, the final assumptions must also take into account the short- and medium-term trends to project the financial status of the CPP over the next few years and decades.
There is much uncertainty regarding how demographic, economic, and investment environments will evolve, especially in light of the current pandemic and COVID variants, climate change and ways to transition to a green economy, the retirement of the baby boomers which is well underway, the aging of the population, low interest rate environment, digitalization, and other developments. All these uncertainties make our projections difficult. For these reasons, it is our privilege to be able to consult with demographic, economic, and investment experts for their views on long-term perspectives. Given the current pandemic and impacts of climate change, the office is also very interested in experts’ short- to medium-term perspectives.
Our webinar will be held over three afternoons this week, each focusing on certain topics which the OCA CPP valuation team has identified as being particularly significant to its assumptions development work for the 31st CPP Actuarial Report. Today, we will first consider mortality perspectives. On Wednesday, the topics presented will be on immigration, the labour market, and economic perspectives. Lastly, on Friday, we will focus on the macroeconomic and investment-related implications of climate change.
There are two things that make these seminars exceptional: first, the quality of our speakers and their particular expertise and second, your active participation. As such, I encourage your questions and welcome your contributions. The success of this seminar is already guaranteed by the quality of our speakers. But we can improve upon it even further by bringing your comments and questions for an active and engaging discussion.
I now call on François Boulé who is a Senior Actuary in our office, to come forward and introduce our first speakers. I wish you an excellent seminar.
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Colin Palmer