Mr. Chairman and members of the committee, on behalf of the Canadian Institute of Actuaries, I would like to thank you for the opportunity of appearing and providing input into this year's pre-budget hearings. It's actually the first time we as an institute have done that.
My name is Michael Hale, and I'm chair of the institute's member services council. With me today is Claude Ferguson, chair of the institute's health care committee and to whom I'll probably refer most of your questions in the health care field.
Your committee invited feedback on a number of key questions. Our input is focused on two of them: first, what are the actions necessary to ensure that our citizens are healthy; and secondly, what should be done to ensure that the government is able to afford the spending measures needed to ensure that we can prosper in the world of the future?
Before speaking to our recommendations, I would like to provide some context to the work we undertake as actuaries. Actuaries are business professionals who are trained to analyze the financial consequences of risk. We use specialized mathematics and financial theory, in combination with analytical skills and business knowledge, to deal with uncertain future events. Much of our work involves the design and pricing of insurance, pension, health, and other benefit programs, and the modelling, measurement, and management of financial risk.
Canada's actuaries have a history of contributing to key public policy issues. For example, our analysis was instrumental in helping to put the Canada Pension Plan on the path to long-term financial stability.
We're here today to talk about making similar contributions in the area of medicare and post-retirement income security. Our expertise in assessing long-term defined benefit programs is applicable to both areas.
In its broadest form, medicare is essentially a public defined benefit plan under which specific health care benefits are promised to Canadians over their lifetime. Defined benefit pension plans similarly promise specific financial benefits to Canadians after their retirement. Both are under considerable pressure today.
Our medicare system faces serious challenges from both a long-term sustainability and an access perspective. Cost increases test the financial resources of individuals, employers, and governments, and access issues are top of mind with Canadians. Governments are working hard to address these daunting challenges, but we believe it is important that this work should be supported by analysis in two critical areas: the financial sustainability of our health care system and the financial implications of actions taken to address health care needs.
Actuaries currently carry out this type of analysis in the context of the Canada Pension Plan. We recommend that this model be adopted in the health care arena and that an office of the chief medicare actuary be created. Overall, this entity would be charged with the responsibility of reporting annually on the financial status of medicare in Canada. It would also provide more transparent means to assess policy options in the medicare programs.
Moving to the issue of pensions, the CIA has long believed that a healthy retirement income system should include both defined benefit and defined contribution pension plans. The future of one of these is at risk. Committee members have no doubt seen news reports that a growing number of companies are converting their defined benefit plans to defined contribution plans.
From a public policy perspective, this is unfortunate given that defined benefit plans have the advantage of providing some certainty as to the benefits that will be provided to plan members. A move to defined contribution plans creates more uncertainty for individuals and shifts much of the risk to plan members.
There are a number of issues that have contributed to this shift away from defined benefit pension plans. For example, court decisions and regulatory changes around surplus ownership have created unanticipated costs and uncertainties for pension plan sponsors. The decline in long-term interest rates and equity values has increased pension liabilities and led to solvency deficits for a number of plans. Tax rules that limit the buildup of surplus in pension plans have been a contributing factor.
To help ensure the future of defined benefit pension plans as a viable alternative for employers in Canada, the Canadian Institute of Actuaries advocates that pensions be moved firmly onto the national agenda. To facilitate this, we recommend that a mechanism be put in place that allows pension issues to be discussed at a national ministerial level.
A national forum should be created to bring forward initiatives such as new tax rules that permit the accumulation of appropriate levels of surplus, legislation clarifying the rights of plan sponsors and members to access surplus funds, and the harmonization of the regulation and supervision of pensions plans.
We hope this brief overview of the issues discussed in our submission and the recommendations we put forward will be helpful in your deliberations.
We appreciate the opportunity to provide input and would be pleased to answer any questions.