(August 7, 2013) — Canada—heralded as one of the world’s most successful pension systems—may about to be hit by soaring longevity assumptions that could knock out their funding statuses.
The Canadian Institute of Actuaries (CIA) has asked pension plans and employers to consider the implementation of new mortality tables that it says more accurately reflect the lifespan of the country’s citizens.
“The subcommittee believes that the proposed mortality improvement scales…will serve as a reasonable approximation of future mortality improvement rates of Canadian pensioners in registered pension plans,” the CIA said.
And, it adds, it is going to be expensive.
“The adoption of the proposed tables will result in an increase in recognized costs for Canadian pension plans and their sponsors to the extent that the mortality tables and improvement scales used in recent valuations have not reflected recent experience.”
These new tables were produced after the CIA carried out a detailed study of the experience of members in the Canada Pension Plan and Québec Pension Plan. The CIA also looked at the experience of members in several other private sector and public plans to come up with a better view of longevity—and its potential impact on funds.
The studies found there had been a rapid improvement in longevity since 1967 when detailed data recording was initiated. It said that most pensions’ assumptions had not kept pace with these longer lives, which has potentially given a false reading of liabilities.
The CIA’s figures show that there had been huge improvements in longevity and that Scale AA—used by most to measure this liability—was woefully out of touch.
Using their own new calculations, the CIA found men’s lifespans were being underestimated to a greater extent than women’s, meaning most of the potential shortfall in funding levels would be down to the male members of a pension.
One reprieve for Canadian plans, however, is that the CIA does not expect improvements to increase over the next 40 years with the speed at which they did over this last period.
Concerned parties have until September 30 to respond to the consultation. The document can be found here.
Related content: How Pensions Made Canada Great