Actuarial Report (10th) Supplementing the Actuarial Report on the Old Age Security Program

I. Executive Summary

This is the 10th Actuarial Report since the inception of the Old Age Security Act in 1952. It has been prepared in compliance with section 4 of the Public Pensions Reporting Act, which provides that:

Where an amendment is made to a pension plan referred to in subsection 3(1) and the amendment affects the cost of benefits or creates an initial unfunded liability, the Minister shall cause the Chief Actuary to conduct an actuarial review of the plan as of the effective date of the amendment.

The most recent report made pursuant to section 3 is the 9th Actuarial Report on the Old Age Security (OAS) Program, which was tabled in the House of Commons on 20 July 2011. Therefore, this 10th Actuarial Report has been prepared on the basis of the 9th Actuarial Report to show the effect of Part 3 of Bill C-3 on the long-term financial status of the OAS.

Part 3 of Bill C-3, the Supporting Vulnerable Seniors and Strengthening Canada’s Economy Act received Royal Assent on 26 June 2011. It amends the Old Age Security Act to provide a top-up benefit of up to $50 per month for Guaranteed Income Supplement (GIS) recipients who are single or whose spouse or common-law partner is not a pensioner, and for Allowance recipients who are survivors, and a top-up benefit of up to $70 per month for couples that include two GIS recipients or a GIS recipient and a recipient of the Allowance for the spouse. The additional benefit is reduced by 25 cents for every dollar of income in excess of $2,000 for single individuals and $4,000 of combined income for couples. Therefore, no top-up is payable for single individuals after the annual income reaches $4,400, and for couples after the combined annual income reaches $7,360 or $8,800 if the spouse is not a pensioner. All top-ups are effective 1 July 2011 and indexed thereafter in line with increases in the Consumer Price Index (CPI).

A. Main Findings

• Projected expenditures are respectively $151 million and $310 million higher in 2011 and 2012 than under the 9th OAS Actuarial Report.
• Projected expenditures are $1.5 billion higher than under the 9th OAS Actuarial Report over the five-year period running from 1 July 2011 to 31 December 2015.
• The projected number of GIS and Allowance beneficiaries who will receive the top-up benefit is about 680,000 in 2011 and about 700,000 in 2012.
• Projected total program expenditures, expressed as a percentage of the Gross Domestic Product (GDP), are 2.37% in 2011 and 2.43% in 2012.

II. Introduction

This report has been prepared in compliance with section 4 of the Public Pensions Reporting Act, which provides that:

Where an amendment is made to a pension plan referred to in subsection 3(1) and the amendment affects the cost of benefits or creates an initial unfunded liability, the Minister shall cause the Chief Actuary to conduct an actuarial review of the plan as of the effective date of the amendment.

III. Description of Part 3 of Bill C-3

Part 3 of Bill C-3, the Supporting Vulnerable Seniors and Strengthening Canada’s Economy Act received Royal Assent on 26 June 2011. It amends the Old Age Security Act to provide a top-up benefit of up to $50 per month for GIS recipients who are single or whose spouse or common-law partner is not a pensioner, and for Allowance recipients who are survivors, and a top-up benefit of up to $70 per month for couples that include two GIS recipients or a GIS recipient and a recipient of the Allowance for the spouse. The additional benefit is reduced by 25 cents for every dollar of income in excess of $2,000 for single individuals and $4,000 of combined income for couples. Therefore, no top-up is payable for single individuals after the annual income reaches $4,400, and for couples after the combined annual income reaches $7,360 or $8,800 if the spouse is not a pensioner. All top-ups are effective 1 July 2011 and indexed thereafter in line with increases in the CPI.

IV. Financial Status

The financial estimates presented in this report use the same actuarial assumptions and methods as per the 9th OAS Actuarial Report as at 31 December 2009.

A. Assumptions and Methods

The monthly GIS and Allowance top-up benefit increases the benefits of lower-income GIS and Allowance recipients. The top-up benefit is reduced by 25 cents for every dollar of income in excess of $2,000 for single individuals and $4,000 of combined income for couples. Based on data provided by Service Canada and the Canada Revenue Agency, the proportions of beneficiaries who would receive the top-up benefit and their average top-up as a percentage of the maximum top-up have been estimated. The estimated number of beneficiaries who would receive the top-up benefit is split into two groups: those receiving a partial top-up and those receiving a full top-up. This process was done by type of GIS and Allowance recipients, age, and sex. The estimated proportions are assumed to apply for years 2011 and thereafter.

On average, about 38% of all GIS beneficiaries are estimated to be entitled to either a full or partial top-up. The average top-up for GIS beneficiaries is estimated at $40 per month for single individuals and $55 per month for couples in 2011.

On average, about 33% Allowance beneficiaries are estimated to be entitled to either a full or partial top-up. The average top-up for Allowance beneficiaries is estimated at $33 per month for single individuals and $56 per month for couples in 2011.

B. Results

For comparison purposes, Table 1 shows the financial status of the OAS Program as it is presented in the 9th OAS Actuarial Report as at 31 December 2009. Table 2 presents the financial status of the OAS Program as amended by Part 3 of Bill C-3, and Table 3 presents the impacts of the amendments on the financial status of the OAS Program (the differences between the financial results presented in Tables 2 and 1).

Table 1 Financial Status before Amendments (Text Version)
Table 2 Financial Status of Amended Program (Text Version)
Table 3 Impact of Amendments on Financial Status (Text Version)

V. Conclusion

VI. Actuarial Opinion

In our opinion, considering that this 11th OAS Program Actuarial Report was prepared pursuant to the Public Pensions Reporting Act:

• the data on which this report is based are sufficient and reliable;
• the assumptions used are, individually and in aggregate, reasonable and appropriate; and,
• the methodology employed is appropriate and consistent with sound actuarial principles.

This report has been prepared, and our opinions given, in accordance with accepted actuarial practice in Canada, in particular, the General Standards of Practice of the Canadian Institute of Actuaries.

Ottawa, Canada
12 August 2011

Appendix A – Detailed Tables

Appendix B – Acknowledgements

Service Canada provided statistics on the Old Age Security Program and the Canada Pension Plan.

The Canada Revenue Agency provided income tax return information.

The co-operation and able assistance received from the above-mentioned data providers deserve to be acknowledged.

The following people assisted in the preparation of this report:

1. Mathieu Désy, F.S.A., F.C.I.A.
2. Patrick Dontigny, A.S.A.
3. Sari Harrel, F.S.A., F.C.I.A
4. Lyse Lacourse
5. Jonathan Pétrin, A.S.A.
6. Louis-Marie Pommainville, F.S.A., F.C.I.A.