Government Operations Committee on June 18th, 2013

[Peter Braid, Conservative, Kitchener—Waterloo, ON]

Thank you, Mr. Chair.

Thank you very much to all of our presenters for being here this morning. They are very helpful presentations. This really helps to demystify the public service pension plan for committee members.

Ms. Gowing, I want to start with a couple of questions for you. You mentioned in your presentation that contribution rates are set for 2013, 2014, and 2015. They've been approved and implemented.

Is it typical that contribution rates are set three years out?

[Kim Gowing]

Yes, they are. We've set the contribution rates based on the most recent actuarial evaluation, which determines the funding requirements for the plan. We normally set the rates for a three-year period.

[Peter Braid, Conservative, Kitchener—Waterloo, ON]

Great. Thank you.

I have a question about the current deficit as well. In your presentation you describe the deficit as a post-2000 pension liability.

When did the deficit first occur? When was it first reported?

[Kim Gowing]

I'll pass this on to Jean-Claude.

[Jean-Claude Ménard]

It's a very good question.

It was first reported in the 2011 actuarial report. Before that there was a small surplus.

[Peter Braid, Conservative, Kitchener—Waterloo, ON]

Thank you for that clarification.

With respect to the changes that our government has made to the pension plan, effective January 1, 2013, could you speak to how those changes will favourably impact the deficit? In other words, if those changes weren't made, I presume the deficit would grow over time and would be worse.

I realize that life expectancy is a separate issue. But with respect to the changes to the plan, could you explain how those may favourably impact the deficit?

[Jean-Claude Ménard]

First, because the changes are looking forward, it means the balance sheet as of March 31, 2011, is not impacted, so the deficit is exactly the same.

Over time, employees will pay a bit more than they previously paid and the government will pay a bit less.

As the total current service cost—that is, actually about 20% of the pensionable payroll—this number is about 17% for what we call the group 2 contributors. It's the people who will join the plan after January 1, 2013. So going forward, the current service costs will be lower for those people, and of course the employees will pay a lower contribution rate as well as the government for these employees.

It will take some time—I would say at least a couple of actuarial reports—before we will see the impact on liabilities going forward.

[Peter Braid, Conservative, Kitchener—Waterloo, ON]

Thank you.

Monsieur Ménard, you're at OSFI, of course. I presume you have a bit of a viewpoint of the pension landscape across the country, being at OSFI.

Could you speak to how the recent changes to the government pension plan are similar to trends we're seeing in the pension industry in Canada generally?

[Jean-Claude Ménard]

There has been a trend in other jurisdictions where the objective is to share what we call the current service costs 50-50. In the most recent Ontario budget, I think they mentioned that, as well as in Quebec.

This trend of sharing the current service cost in equal parts between the plan members and the government, or the plan sponsor, is a trend that is not unique to the federal level.

[Peter Braid, Conservative, Kitchener—Waterloo, ON]

Thank you very much.

Do I have any time?

[The Chair, NDP, Pat Martin]

You have about a minute and a half left, Peter.

[Peter Braid, Conservative, Kitchener—Waterloo, ON]

Excellent.

Monsieur Leroux, it was a very interesting presentation with respect to how the assets in the plan are invested. I was very interested to learn that not all the assets are actually invested in the markets.

What percentage are invested in the markets and what percentage are invested in other areas, like real estate and private equity infrastructure?

[Martin Leroux]

As of today, we have about a 30% allocation to private asset classes, but our target is to increase this allocation over time to reach 42%.

[Peter Braid, Conservative, Kitchener—Waterloo, ON]

With respect to that private investment percentage, how do you make those decisions? Do you help to fulfill any other government objectives, in terms of investing in infrastructure or in hi-tech startups in the riding of Kitchener—Waterloo, for example?

[Martin Leroux]

As I mentioned in my introductory remarks, we are at arm's length from the government. Our mandate is strictly to invest with the aim of maximizing the return without the risk of loss. A key input in this mandate is basically the actual rate of return of 4.1%, which is required to sustain the plans over the long haul.

[The Chair, NDP, Pat Martin]

Monsieur Ravignat.

[Mathieu Ravignat, NDP, Pontiac, QC]

Thank you, Mr. Chair.

I want to thank the witnesses for joining us today.

In my opinion, there's kind of an elephant in the room at this meeting when we talk about pensions. Most Canadians and most pension holders are wondering whether the finance minister is still scheduled to meet his provincial counterparts to discuss expanding the CPP and QPP.

Are you getting signals or signs that the government is still committed to negotiating, with the provinces and territories, the retirement security for all Canadians, or are they not?

[Kim Gowing]

I cannot answer as to what the Department of Finance is going to do.

[Mathieu Ravignat, NDP, Pontiac, QC]

Does anybody else want to give a response?

[Mark Boutet, Vice-President, Communications and Government Relations, Public Sector Pension Investment Board]

I don't think we can answer either. We are at arm's length.

[Mathieu Ravignat, NDP, Pontiac, QC]

Fair enough. Thanks for the answer.

Did TBS make the planned savings of $20 million in 2012-2013 as a result of the recent changes to the Public Service Pension Plan?

[Kim Gowing]

Currently at this time, because the public accounts for 2013 aren't out yet, we can't answer that. We expect that in the coming months, though, we'll be able to determine what savings have been—

[Mathieu Ravignat, NDP, Pontiac, QC]

Are we expecting that those savings will hit $20 million?

[Kim Gowing]

That's the expectation.

[Mathieu Ravignat, NDP, Pontiac, QC]

So you're still on target?