Mr. Chair, distinguished members of the committee, good morning. Thank you for the opportunity to appear before you today to discuss Canada's social security system and how it is faring in the face of today's economic turmoil.
The primary role of the OCA is to provide actuarial services to the federal and provincial governments who are Canada Pension Plan (CPP) stakeholders. While I report to the superintendent of financial institutions I am ultimately responsible for the content and actuarial opinions reflected in the reports prepared by my office.
The mandate of the OCA is to conduct statutory actuarial valuations of the CPP, the Old Age Security Program and other pension plans covering the federal public service every three years. Although OSFI is the regulatory body for approximately 7% of all private pension plans in Canada, accounting for approximately 12% of pension assets, OSFI has no role in regulating the Canada Pension Plan. As the chief actuary, my responsibility is not regulation of the CPP; rather it is limited to providing regular actuarial valuations of the long-term sustainability of the CPP.
The financial turmoil has touched countries in all continents. Pension plan funding has been affected, and the financial status of social security schemes has deteriorated. The average pension fund return for OECD countries was negative 19% for the first 10 months of 2008. The CPP fund dropped by $13.8 billion during the last nine months of 2008. Still, the CPP assets of $111 billion represent four times the annual benefits paid. In comparison, 10 years ago, the assets represented less than twice the annual benefits paid.
Despite the current volatility in financial markets and the fact that the value of CPP assets will fluctuate over the short term, it is the ongoing contributions made by working Canadians in addition to long-term investment performance that will determine the plan's ability to meet its commitments to plan members.
I will now move to English.
The Canadian retirement income system is composed of three pillars, old age security, the Canada and Quebec pension plans, and the third pillar, the RRSPs and the registered pension plans or employer-sponsored pension plans.
According to a Statistics Canada study as of year-end 2007, Canadian pension assets equalled 138% of gross domestic product. A comparable OECD/World Bank study identified Canada as one of only seven countries in the world where pension assets exceed 100% of gross domestic product.
For the old age security program, aging will cause an increase in the expenditure of the OAS program. However, compared to other G-7 countries, Canada has shown remarkable budgetary improvement since the mid-1990s. Balancing the budget and taking steps to put debt as a proportion of GDP on a downward track are effective ways to ensure the sustainable financing of the old age security program. Despite Canada's return to a budget deficit this year and projections of further economic contraction, it is anticipated that these will be temporary and will not affect the government's ability to pay future OAS benefits.
For the Canada Pension Plan, from 2000 to 2019, the net cashflows of the plan, that is, contributions less expenditures, have been and will continue to be positive, resulting in a rapid increase in the plan's assets expenditure ratio and funding status.
To conclude, in these uncertain times it is necessary to continue to monitor the financial health of social security systems. In Canada the next CPP, Canada Pension Plan, and OAS actuarial reports will be performed as of December 31, 2009, and will take into account the current economic environment as well as the long-term demographic outlook. The combination of old age security, the guaranteed income supplement, and the compulsory contributory pension plans, the Canada and Quebec pension plans, has contributed significantly to reducing poverty among seniors over the past three decades. The OECD and the Luxembourg Income Study Research Institute consider Canada to be the country that has the least difficulty answering the economic well-being of retirees. To quote the research institute:
The choice of policy is crucial, as shown for instance by the low cost but highly target-effective Canadian efforts in fighting elder poverty.
With the Netherlands, Finland, and Sweden, Canada is in a select group of countries where the incidence rate of low-income seniors is less than 5%.
I wish to thank you for the opportunity to appear before this committee and will be pleased to answer any questions you may have.
Thank you.