Presentation Slides - “Living to 100…will the CPP be sustainable?”

Document Properties

  • Type of Publication: Presentation
  • Subject: Living to 100…will the Canada Pension Plan be sustainable?
  • Speaker:
    • Jean-Claude Ménard, Chief Actuary
      Office of the Chief Actuary
      Office of the Superintendent of Financial Institutions Canada
  • Date: 27 October 2014,
  • Place: Orlando, United States

Presentation Outline

  • Results of the 26th Canada Pension Plan Actuarial Report
  • Historical trends in Canadian mortality
  • Mortality Projections Results
    • Uncertainty of Results
  • Can We Live Beyond 100 Years?
  • Canadian Mortality Tables for Pension Plans

Page: 2


Purpose of the Actuarial Report on the Canada Pension Plan as at 31 December 2012

  • Inform contributors and beneficiaries of the current and projected future financial status of the Canada Pension Plan
  • Calculate the minimum contribution rate
  • Actuarial report is based on “best-estimate” assumptions over a long period of time (75 years).
    • Although secondary, recent trends are also taken into account.

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The legislated contribution rate of 9.9% is sufficient to sustain the Plan over the projection period of 75 years

  • With the legislated contribution rate of 9.9%, contributions are more than sufficient to cover expenditures until 2023.
  • Starting from 2023, a proportion of investment income is required to pay the expenditures. In 2030, 22% of investment earnings is required to pay for benefits.
  • Results contained in this report confirm that the 9.9% contribution rate is sufficient to financially sustain the Plan and to accumulate assets of $300 billion in 2020.

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So, what is about living to 100 and CPP?

  • Best-Estimate Mortality Assumptions of the 26th CPP Report as at 31 December 2012 include future mortality improvements

BUT executive summary of the CPP26 states:

If life expectancies continue to increase at the current rate, especially for ages 75 to 89, the long-term mortality assumptions will need to be adjusted.

  • If by 2050 cohort life expectancy at age 65:
    • increases by about 5 years compared to 2013: contribution rate increases to 10.2%
    • is the same as in 2013: contribution rate falls to 9.5%.

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Life Expectancy at Birth (Calendar)

Source : Canadian human Mortality Database, University of Montreal

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Contribution to increase in life expectancy at birth has gradually shifted to people over age 65

Source: Canadian human Mortality Database, University of Montreal and Office of the Chief Actuary calculations.

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Improvements in mortality related to heart diseases have been significant over the last 15 years

 

Source: Data from Statistics Canada, Health Division and OCA Calculations Standardized Using 2001 Canadian Population

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Life Expectancy at Age 65 (Calendar)

Source : Canadian human Mortality Database, University of Montreal

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Heat map of historical and projected mortality improvement rates for males

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Heat map of historical and projected mortality improvement rates for females

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Canadian mortality rates at ages 15 to 54 are significantly lower than US rates

Source: Canada : Office of the Chief Actuary, 26th CPP Actuarial Report and Statistics Canada catalogue 84-215-x
U.S. : 2012 OASDI Trustees Report and U.S. National Vital Statistics Report, Volume 60 No.3
All rates are standardized using the 2012 Canadian population

Page: 12


Mortality Rates for older age groups have decreased over the last 80 years, more so over the last 40 years for males

Source: Canada : Office of the Chief Actuary, 26th CPP Actuarial Report and Statistics Canada catalogue 84-215-x
U.S. : 2012 OASDI Trustees Report and U.S. National Vital Statistics Report, Volume 60 No.3
All rates are standardized using the 2012 Canadian population

Page: 13


For ages 65 to 74, 7 deaths per 1,000 are from cancer, while only 3 deaths per 1,000 are from heart diseases

Source: Canada : Office of the Chief Actuary, 26th CPP Actuarial Report and Statistics Canada catalogue 84-215-x
U.S. : 2012 OASDI Trustees Report and U.S. National Vital Statistics Report, Volume 60 No.3
All rates are standardized using the 2012 Canadian population

Page: 14


Male mortality rates for ages 75 to 84 for Canada are projected to become lower than US female mortality rates

Source: Canada : Office of the Chief Actuary, 26th CPP Actuarial Report and Statistics Canada catalogue 84-215-x
U.S. : 2012 OASDI Trustees Report and U.S. National Vital Statistics Report, Volume 60 No.3
All rates are standardized using the 2012 Canadian population

Page: 15


Elderly Mortality Rates have decreased over the last 80 years, more so over the last 10 years

Source: Canada : Office of the Chief Actuary, 26th CPP Actuarial Report and Statistics Canada catalogue 84-215-x
U.S. : 2012 OASDI Trustees Report and U.S. National Vital Statistics Report, Volume 60 No.3
All rates are standardized using the 2012 Canadian population

Page: 16


For ages over 90, heart diseases remain the main cause of deaths

Source: Canada : Office of the Chief Actuary, 26th CPP Actuarial Report and Statistics Canada catalogue 84-215-x
U.S. : 2012 OASDI Trustees Report and U.S. National Vital Statistics Report, Volume 60 No.3
All rates are standardized using the 2012 Canadian population

Page: 17


Currently, Canadian seniors are living longer than those in UK and US

  • Current Canadian mortality rates for ages 65 and over are lower than those in UK and US
  • By 2049, the difference with US is projected to widen further
  • Due to the higher assumed ultimate mortality improvement rates in UK, by 2049, UK mortality rates for ages 65 and over are projected to become lower than those in Canada.

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The likelihood of premature mortality decreased dramatically

Probabilities are based on the mortality rates of the calendar year of birth.

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Increase in Life Expectancy at 65

More contributors are expected to reach the retirement age of 65 (93% for someone age 18 in 2013). Retirement beneficiaries are expected to receive their benefits for a longer period.

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Uncertainty of Results Life Expectancies at age 65 if MIRs by cause are sustained

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Uncertainty of Results: Life Expectancies at 65 if heart diseases and cancer gradually removed over 75 years

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Current Canadians are expected to live to age 90 with probability of more than 40%

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Can We Live Beyond 100 Years? Probability of living to 100 for Canada, the U.S. and the U.K.

Source: 2012 OASDI Trustees Report, UK Office for National Statistics, 26th CPP Actuarial Report

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Survival Curves for a Life Expectancy of 100 (Males)

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Mortality rates of pension plans vary from those of the general population

  • Mortality rates of a particular subgroup depend on its characteristics, such as level of education, level of income, industry of employment, etc.
  • Large plans use their own experience for funding valuations
  • In February 2014, the CIA has finalized the first ever Canadian Pensioners Mortality table (CPM2014) as well as a projection scale (scale B)
    • Private/public pension plans
    • Level of income
  • In developing mortality assumptions for public sector pension plans (e.g. PSSA, RCMP, CFSA), mortality experience of each plan is analysed
    • Mortality improvement rates are based on trends in Canadian mortality and OCA best-estimates. Usually the same as for the CPP actuarial reports.

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Life expectancy under CPM2014 is significantly higher than under UP94

 

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Life expectancy under CPM2014 is significantly higher than under UP94

 

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Conclusions

  • Retirement is expensive and will become even more expensive in the future with improved longevity
  • Projected mortality rates after 2030 are highly uncertain, especially for people older than age 90
  • It is a professional duty of the actuary to examine all available information in order to develop best-estimate mortality assumptions.

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Mortality Projections of Public Pension Plans in Canada and its financial implications

Appendix

27 October 2014, Orlando, United States

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Canadian historical annual mortality improvement rates are used as a starting point of projections

Source: Estimated by OCA based on data from Canadian Human Mortality Database, Dept. of Demography of University of Montreal

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CPP26 Annual Mortality Improvement Rates (%)

Males
Age 2010 2011-2029 2030+
15-54 2.4 1.5 0.8
55-64 2.3 1.5 0.8
65-74 3.0 1.8 0.8
75-84 2.6 1.7 0.8
85-89 2.0 1.3 0.6
90-94 1.3 0.8 0.4
95+ 0.4 0.3 0.3
Females
Age 2010 2011-2029 2030+
15-54 1.3 1.0 0.8
55-64 1.7 1.2 0.8
65-74 1.8 1.3 0.8
75-84 1.7 1.3 0.8
85-89 1.5 1.1 0.6
90-94 1.2 0.8 0.4
95+ 0.4 0.3 0.3
  • 2010 MIRs are set equal to the average annual rates of mortality improvement over the last known 15 years 1994-2009, by age and sex
  • Ultimate improvement rates are set to about ½ of females last 15 years experience
  • MIRs for the intermediate period (2011-2029) are derived from interpolating the MIRs between 2010 and 2030 using cubic functions.

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Infant Mortality Rates have decreased significantly over the last 80 years, less so over the last 20 years

Source: Canada : Office of the Chief Actuary, 26th CPP Actuarial Report and Statistics Canada catalogue 84-215-x
U.S. : 2012 OASDI Trustees Report and U.S. National Vital Statistics Report, Volume 60 No.3
All rates are standardized using the 2012 Canadian population

Page: 33


For ages 1 to 14, main causes of death are accidents, followed by cancer

Source: Canada : Office of the Chief Actuary, 26th CPP Actuarial Report and Statistics Canada catalogue 84-215-x
U.S. : 2012 OASDI Trustees Report and U.S. National Vital Statistics Report, Volume 60 No.3
All rates are standardized using the 2012 Canadian population

Page: 34


By 2030, Canada is projected to be behind UK and Switzerland for males

 

Source: 17th International Conference of Social Security Actuaries and Statisticians and Dept. of Population, Japan

Page: 35


Japanese, British, Swiss, French and Finnish women are all projected to live longer than Canadian women by 2030

 

Source: 17th International Conference of Social Security Actuaries and Statisticians and Dept. of Population, Japan

Page: 36


Uncertainty of results: mixed stochastic/deterministic approach produces wide range of life expectancies

 

Page: 37


Survival Curves for a Life Expectancy of 100 (Females)

 

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To live beyond 100…

  • If mortality rates decrease at the same pace as observed over the past 15 years (2.5%/year males, 1.5%/year females), a life expectancy of 100 could be attained in 85 years (2094) for males and in 112 years (2121) for females.
  • A reduction of mortality rates at each age by 87% for males and 82% for females results in a life expectancy of 100.
  • Using the “age mapping” (a mathematical technique), life expectancy of 100 is also achievable if the maximum life span increases to 140 years for males and 132 years for females

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