Public Accounts Committee on June 4th, 2014

[Daniel Watson]

I think this goes to the governance questions that were raised in the report and that we agree with fully.

Over time, plans developed in different ways and there were different practices historically. It's time now that we accept what the Auditor General has recommended and improve some of the governance issues. Buyback would be a good example of the type of thing where we need to look at the best practices across all of the different plans that we've had over time. It's a situation where we had a particular approach that might have been fine at the time, but strategies change, and understandings of how best to do it change. It's time for us to get to that work, and we will go ahead and do that.

I don't know if my colleague Ms. Gowing has anything to add to that.

[Kim Gowing, Director, Pensions and Benefits Sector, Treasury Board Secretariat]

With respect to the service buybacks, yes, we're aware that we need to bring how we do the methodology in line with the RCMP and the Canadian Forces. However, we wish to look at it from a holistic approach, that all the plans are aligned that way, and we're going to get that work done.

[Bryan Hayes, Conservative, Sault Ste. Marie, ON]

Is there an anticipated timeline when something like that might be considered and implemented?

[Kim Gowing]

We're looking to get something in line probably in the year 2015-16.

[Bryan Hayes, Conservative, Sault Ste. Marie, ON]

Mr. Moreau, do you have any comments? I expect you probably agree with what's being said, but you might like to add something.

[A/Commr Gilles Moreau]

Absolutely. I think the plan needs to be aligned. Of course, our pension buyback provisions have been changed, about three years ago. That's why they're perhaps more reflective of today's reality compared to others that were older. We used that opportunity to put them into today's reality. We did that with the Treasury Board Secretariat, in consultation with them.

[Bryan Hayes, Conservative, Sault Ste. Marie, ON]

Thank you.

Ms. Cheng, you mention this in paragraph 1.17: “For the purpose of this audit, we examined selected responsibilities assigned through legislation.”

For me as a legislator, or for all of us on this committee, would you recommend that legislation be amended in any way to change the responsibilities of the President of the Treasury Board, the Minister of National Defence, and the Minister of Public Safety? Was that a recommendation that came out, that as legislators we should be looking at changing the legislation in some way?

[Nancy Cheng]

Mr. Chair, the recommendation we made was to the departments and agencies involved, the entities involved, to see how they can work together within the current legislative framework. Now, if the legislators see fit to streamline that and make it easier for the various departments and agencies to do so, so much the better, but the recommendation wasn't begging for legislative change.

I think that in the responses you see good agreement from all parties involved. They feel that they have the mechanisms and ways in which to work within that legislative framework. We're not prescriptive in terms of suggesting that legislation needs to be amended.

[Bryan Hayes, Conservative, Sault Ste. Marie, ON]

Mr. Ménard, how many of you actuarial folks exist in Canada? Do you meet on a regular basis to kind of compare notes?

I mean, you bring forward different scenarios, and plans are built around those scenarios. We need, obviously, a level of confidence that the scenarios you're bringing forward are realistic. I don't doubt that they are, but what can you tell me in terms of your field and how you determine different scenarios?

[Jean-Claude Ménard]

Thank you for your question.

I am a member of the Canadian Institute of Actuaries, which has more than 2,000 members across Canada.

Perhaps I can use your question to explain this. Of course when we do assumptions, for example, we have to consult with experts and with our colleagues in Canada, but for the Canada pension plan, an independent peer review was put in place in 1999. It's three actuaries from the private sector, and sometimes they're academics, who look at the most important assumptions.

I want to talk about two assumptions that have an impact on the Canada pension plan and/or the public service pension plan: one is longevity improvements, and two is the real rate of return on investment. In the most recent peer review report, which was published in May of this year, they said, “Well, mortality, fine; but if we were the guys who'd selected the assumptions, maybe we'd have used a different assumption.” They were looking at more improvements, something that was raised in the report of the Auditor General. On the other hand, for the real rate of return, they looked at our assumptions and they said, “Well, in our reviews, maybe you are too prudent.”

Among the ten major assumptions, for three they would have selected a different assumption. For inflation, they would have selected 2%; we have 2.2%. For mortality, the improvements were as I said, and the rate of return on investments.

This process is extremely important for us to recalibrate, let's say, and consult more when there's a need for that.

[The Chair, NDP, David Christopherson]

Merci.

The time has expired.

Madam Jones, you have the floor.

[Yvonne Jones, Liberal, Labrador, NL]

Thank you again to our guests, not just for your information, but for your patience as well.

My question is relative to paragraph 1.12. It's interesting when you look at the longevity piece and what's happening in Canada with regard to the pension plan. You start making a comparison. As you noted in your report, in 1970, for instance, in the public service, a normal person had 41 working years and 14 retirement years. In 2010 that was 39 working years and 23 retirement years.

It's amazing and startling when you look at those numbers and you start realizing the impact they have on the pension plan in the country and the challenges of ensuring the sustainability of that plan.

I realize that the decisions in the 2012 budget were made obviously to maintain the sustainability of the plan and, hopefully, to increase the savings over a period of time. I think the year you quoted was the 2017-18 fiscal year.

I have two questions. One thing you note in your report is that while there is a trend for longevity to increase, and you expect it to continue into the future, you're expecting it to increase at a slower pace. I'd like to know which indicators allowed you to draw that conclusion.

Also, do you think the government's raising the pensionable age by five years and increasing the employee's share of contributions to 50% will be adequate in terms of sustainability, or will we be looking at further changes that could come within the next few years?

[Daniel Watson]

Mr. Chair, thank you to the member for the question.

I'll start with the second question. It's not the type of thing you can simply do once every five, 10, or 35 years to make sure the plan is working. You have to look at it on a constant basis. There's everything from the 90-day reports we get from PSPIB to look every 90 days at how the funding is working to the work we are constantly doing with the office of the chief actuary to revisit not only the assumptions we've made but whether or not there are other assumptions we haven't thought of yet that we should bring in. There is constant analysis and review of changes in things like longevity or mortality rates, morbidity rates, and other things like that. There is the type of work the chief actuary has talked about in terms of working with his peers to make sure the analysis that his office brings to it is constantly as up to date as possible.

Then we also look at the nature of the plan itself, which goes to the work, for example, that we need to do on the funding plan that recognizes the cycle of life that the pension plan is in. Obviously our obligations in the post-2000 plan are very different from what they were in the pre-2000 plan. Bringing all of those things together is part of the key work we do to ensure sustainability. Again, you do that constantly, not just sort of periodically.

I'll let my colleague l'actuaire en chef talk to the longevity issues, because he's the real expert there.

[Jean-Claude Ménard]

I would like to raise three issues.

First, you mentioned the slower pace. We mentioned that there's already a provision of $7.7 billion to take into account the expected future improvements. Behind that number is that we are projecting a reduction of 40% in the mortality rates for those between the ages of 15 and 84, almost the same as over the last 40 years.

If you look at the work done, let's say at the international level, the country that is the most aggressive in terms of longevity improvements in the future is the U.K. It's doing that through what they call the continuous mortality investigation project. Although we are projecting that there will be almost the same number of people reaching age 90, the number of people reaching 100 will be very different. In other words, they have much more aggressive reduction in mortality rates for those between 85 and 100.

The point here is that it's very difficult for doctors and humanity to reduce mortality rates significantly at age 95. It's much more difficult than it is at age 65.

[The Chair, NDP, David Christopherson]

Thank you.

Madam Cheng, I know you wanted to get in—you're anxious—so I'll give you 30 seconds to get your message in.

[Nancy Cheng]

Thank you, Mr. Chair.

To address the second question from the member with regard to the adequacy, the audit did not try to assess whether it was adequate. We asked the government officials to be able to show us, to demonstrate, that they assessed the sustainability. They showed us two measures whereby they made changes. They said there was additional work done, but we were not able to see that.

We received a management representation, but we cannot give you the assurance that the information has been audited.

[The Chair, NDP, David Christopherson]

Very good. Thank you.

We have enough time now for a four-minute round from Mr. Albas.

At the conclusion of that, colleagues, I will adjourn. We do have at least one other piece of business, as well as future business, to look at between now and the rising. When Mr. Albas concludes, I will thank our guests and adjourn the meeting.

You have the floor, sir.

[Dan Albas, Conservative, Okanagan—Coquihalla, BC]

Thank you very much, Mr. Chair.

Thank you to our guests.

Mr. Watson, we were talking last time about the secretariat improving its capacity by hiring staff. I'd like to go to paragraph 1.49: “The issue of intergenerational fairness was also addressed in the draft policy”—going back to what Mr. Hayes was discussing—“and in later documents. However, at the time of our audit, the policy had yet to be completed.”

Can you let us know whether or not this has been looked at, and worked on, by the secretariat?

[Daniel Watson]

Yes, and we will continue to work on it. It was something that was part of our earlier work. Again, we haven't completed it, but we continue that work. That is a very important part for us, to make sure that you don't have one generation paying for another in an unfair way. In fact, we're trying to set up the plan so that each generation pays for itself as it reaches retirement.

[Dan Albas, Conservative, Okanagan—Coquihalla, BC]

I think that's very, very important to note, especially considering that people who are working today are paying more into their pensions. That they will be paying, effectively funding half of their retirement, I think is a good thing.

To Assistant Commissioner Moreau, congratulations on 35 years.

[A/Commr Gilles Moreau]

Thank you.

[Dan Albas, Conservative, Okanagan—Coquihalla, BC]

I'm very happy that you got some kudos earlier from my colleague; however, I just wanted to add my congratulations.

In regard to the obligations vis-à-vis pension plans, there's a comment in paragraph 1.68 that states: “The RCMP, for example, argued that it would be risky to implement governance principles that are not specifically set out in legislation.” What we heard from Ms. Cheng earlier was that there was agreement from all parties that different departments....

Again, I liken it to a trustee position. Legislatively, you've been given the task of creating a pension for your members. It may not be spelled out in legislation that you have a trustee role. Would you say that the RCMP has taken a step back from this particular opinion and is moving more towards a trustee position when it comes to governance and working proactively with other members, such as the Treasury Board Secretariat?

[A/Commr Gilles Moreau]

Absolutely. We do have that role of the trustee and we have been working in that fashion for all the years we've looked after the plan. We are committed to participating very, very actively in any new structure that the TBS will put in place, as far as governance is concerned, and to make sure that the plan is sustainable in the long term, and not only to just administer the plan but to be responsible for that as well.

[Dan Albas, Conservative, Okanagan—Coquihalla, BC]

Why was the RCMP cited out for this? Has your opinion changed since going through this process?

[A/Commr Gilles Moreau]

I think it's basically to make sure that.... You know, we want to stay within the framework of the act that governs our pension plan, and we want to make sure that we follow those rules in the administration of it. But of course we always look at it in making the changes that are necessary legislatively. For example, with pension portability, what we introduced is something that is perhaps more modern than the other two plans. We did that working with TBS officials and in consultation with DND, and we will continue to do that in the future.