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On May 2, the Office of the Chief Actuary (OCA) hosted the third seminar on "Demographic, Economic and Investment Perspectives of Canada, years 2003-2050". The daylong seminar featured four guest speakers who spoke to nearly 100 invited participants from across the country and from various provincial and federal government organizations.
In his opening remarks, Jean-Claude Ménard, Chief Actuary, mentioned, that ‘a seminar like this is a unique opportunity for all of us to share our experience and knowledge with colleagues’.
Mr. Ménard also added “we will focus our discussions on one of the biggest challenges that Canada will face in the coming decades: the aging of the working labor force … Discussing, reflecting on and questioning the key assumptions is crucial to our work. Forecasting the future is not an exact science. Forecasts, even those that are based on the best information and the best assumptions, are not always right. The result is that one must constantly conduct re-evaluations and make adjustments. Millions of Canadian men and women count on the work done by the people in this room to safeguard the future of the Canada Pension Plan and the Quebec Pension Plan: 15 million contributors and more than 5 million beneficiaries.”
Once again, each of the guest speakers brought forth their knowledge and demonstrated their solid expertise in their respective fields of competence.
The first guest speaker, David Baxter, Executive Director of the Urban Futures Institute, presented ‘Changing people, changing participation: Demographic and behavioural trends as a context for the future of the Canada Pension Plan’.
Mr. Baxter’s paper provides a summary of projections of demographic change Canada can anticipate over the next half century, based on evidence of trends indicated in data from the past three-quarters of a century. It commences with the consideration of the future implications of the current levels of natality and mortality, labour force participation, and of the current age profile of Canada’s population. This status quo projection establishes a baseline to which future changes in these factors can be evaluated. (Link to Presentation in PDF version (PDF, 411 kB)
William B.P. Robson, Vice President and Director of Research of the C.D. Howe Institute gave a speech on the aging of the population and the possible impacts on work force participation and productivity.
In summary, growth in labour income and investment returns are critical to the outlook for publicly funded elderly benefits and the Canada and Quebec Pension Plans. Prospective slower growth and rising average age of Canada’s population may lower saving rates and productivity growth in the future. The resulting slower growth of aggregate income would adversely affect returns to both labour and capital. This paper uses a simple growth-accounting framework to outline the possibilities. The projections illustrate some possible damping effects of lower savings and productivity growth on aggregate income and shows that the increases in work effort from older workers necessary to offset the adverse effects are unrealistic. The paper concludes that upcoming actuarial investigations of the future costs and sustainability of elderly benefits and the CPP should adopt cautious assumptions about the robustness of both future growth in labour income and returns on investment. (Link to Presentation in PDF version (PDF, 400 kB)
Richard Guay, Executive Vice President, Risk Management and Depositors' Accounts Management, of the Caisse de dépôt et placement du Québec.
Mr. Guay presented the factors that should be taken into account in setting the optimal asset allocation. The paper reviewed the limitation of historical approach and provided a breakdown of investment return and implicit risk premium under two prospective approaches. With the equity risk premium expected to be well under averages, the paper presents different composition of optimal portfolio with different risk levels. (Link to Presentation in PDF version (PDF, 327 kB)
Zainul Ali, Vice President, Strategic Research & Investment Risk Management at the Ontario Municipal Employees Retirement System (OMERS)
A summary of how these are difficult times for plan sponsors. Risk seem inordinately high – economic and geopolitical. The equity risk premium is an important issue. Going forward, it may well be below historical averages. Fiduciaries should understand the consequences and the impact on the plan’s funded status. A lower equity risk premium does not mean stocks are all bad, only that the outcome may not be as favourable as anticipated. More important, understanding both the current investment regime and the assumptions underlying the asset allocation process is crucial. (Link to Presentation in PDF version (PDF, 337 kB)