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

12 August 2011

The Honourable Diane Finley, P.C., M.P.
Minister of Human Resources and Skills Development Canada
House of Commons
Ottawa, Canada K1A 0G5

Dear Minister:
In accordance with section 4 of the Public Pensions Reporting Act, which provides that the Minister shall cause the Chief Actuary to conduct an actuarial review when an amendment is made to the Old Age Security Act that affects the cost of benefits, I am pleased to submit the 10th Actuarial Report on the Old Age Security Program.
Yours sincerely,
Signature
Jean-Claude Ménard, F.S.A., F.C.I.A.
Chief Actuary

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

V. Conclusion

The 10th OAS Actuarial Report shows that:

  • 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 expenditures, expressed as a percentage of the GDP, are 0.01% higher in 2011 and 0.02% higher in 2012 than projected under the 9th OAS Actuarial Report.

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.


michael millette

Michel Millette, F.S.A., F.C.I.A.
Senior Actuary

jean-claude

Jean-Claude Ménard, F.S.A., F.C.I.A.
Chief Actuary

Ottawa, Canada
12 August 2011

Appendix A – Detailed Tables

Table 4 Beneficiaries (Projected)(1)
Year Number of Beneficiaries Recipient Rates
OAS
(thousands)
GIS
(thousands)
Allowance
(thousands)
OAS
(%)
GIS
(%)
Allowance
(%)
2010 4,732 1,623 92 98.1 33.6 4.7
2011 4,889 1,752 93 98.2 35.2 4.6
2012 5,091 1,820 89 98.2 35.1 4.3
2013 5,289 1,886 86 98.3 35.1 4.1
2014 5,482 1,957 84 98.4 35.1 3.9
2015 5,679 2,028 82 98.4 35.1 3.7
2016 5,882 2,106 81 98.5 35.3 3.5
2017 6,087 2,185 81 98.6 35.4 3.4
2018 6,307 2,264 80 98.7 35.4 3.3
2019 6,539 2,352 80 98.7 35.5 3.2
2020 6,782 2,431 79 98.8 35.4 3.1
2021 7,025 2,511 79 98.8 35.3 3.0
2022 7,277 2,595 78 98.9 35.3 3.0
2023 7,531 2,677 78 98.9 35.2 2.9
2024 7,784 2,761 77 98.9 35.1 2.9
2025 8,043 2,849 76 99.0 35.1 2.8
2026 8,304 2,935 74 99.0 35.0 2.8
2027 8,559 3,020 72 99.1 35.0 2.8
2028 8,821 3,105 69 99.1 34.9 2.7
2029 9,073 3,186 65 99.2 34.8 2.6
2030 9,302 3,260 61 99.2 34.8 2.6
2031 9,490 3,323 59 99.3 34.8 2.5
2032 9,647 3,376 58 99.4 34.8 2.4
2033 9,787 3,422 57 99.5 34.8 2.4
2034 9,921 3,463 56 99.5 34.7 2.4
2035 10,050 3,495 55 99.6 34.6 2.3
2036 10,171 3,522 53 99.6 34.5 2.3
2037 10,268 3,543 53 99.7 34.4 2.2
2038 10,353 3,558 52 99.7 34.3 2.2
2039 10,429 3,568 52 99.7 34.1 2.1
2040 10,507 3,576 52 99.7 33.9 2.1
2045 10,860 3,582 52 99.8 32.9 1.9
2050 11,282 3,580 50 99.7 31.6 1.8
2055 11,732 3,579 47 99.6 30.4 1.7
2060 12,159 3,573 41 99.7 29.3 1.5

Footnotes

Footnote 1

The projected basic OAS pension recipient rates and number of beneficiaries are on a gross basis; that is, before application of the OAS Recovery Tax. The GIS and Allowance benefit recipient rates and number of beneficiaries account for Tax-Free Savings Accounts (TFSAs). All recipient rates include benefits paid outside Canada and for this reason can exceed 100%.

Return to footnote 1 referrer

Table 5 Expenditures and Average Annual Benefits (Projected)(1)
Year Expenditures ($ million) Average Annual Benefit ($)
OAS GIS Allowance Administrative Expenses Total OAS GIS Allowance
2010 27,984 7,836 553 127 36,500 5,913 4,829 6,018
2011 29,468 8,729 582 138 38,917 6,027 4,981 6,245
2012 31,290 9,367 577 143 41,377 6,146 5,146 6,478
2013 33,141 9,857 570 151 43,719 6,266 5,226 6,626
2014 35,022 10,391 568 160 46,141 6,388 5,310 6,776
2015 36,987 10,939 571 168 48,665 6,513 5,395 6,930
2016 39,048 11,562 576 178 51,364 6,639 5,490 7,084
2017 41,225 12,211 586 188 54,210 6,772 5,589 7,239
2018 43,614 12,879 596 198 57,287 6,915 5,688 7,408
2019 46,219 13,639 605 210 60,673 7,068 5,798 7,590
2020 49,018 14,388 611 222 64,239 7,227 5,918 7,756
2021 51,913 15,173 622 235 67,943 7,390 6,042 7,915
2022 54,982 16,016 631 249 71,878 7,556 6,172 8,084
2023 58,182 16,863 640 263 75,948 7,726 6,299 8,254
2024 61,490 17,762 650 278 80,180 7,900 6,433 8,425
2025 64,967 18,703 655 293 84,618 8,078 6,566 8,606
2026 68,587 19,667 653 309 89,216 8,260 6,701 8,789
2027 72,283 20,664 646 325 93,918 8,445 6,842 8,970
2028 76,171 21,687 629 342 98,829 8,636 6,985 9,174
2029 80,112 22,727 608 360 103,807 8,830 7,133 9,384
2030 83,981 23,748 589 376 108,694 9,029 7,284 9,594
2031 87,603 24,713 580 392 113,288 9,231 7,437 9,785
2032 91,038 25,640 579 408 117,665 9,437 7,594 9,976
2033 94,435 26,540 580 422 121,977 9,649 7,755 10,182
2034 97,877 27,428 581 438 126,324 9,865 7,920 10,398
2035 101,385 28,282 581 453 130,701 10,088 8,093 10,628
2036 104,911 29,125 580 468 135,084 10,315 8,269 10,865
2037 108,309 29,936 584 483 139,312 10,548 8,448 11,085
2038 111,669 30,715 593 497 143,474 10,786 8,632 11,315
2039 115,031 31,472 605 511 147,619 11,030 8,821 11,551
2040 118,525 32,232 615 526 151,898 11,280 9,014 11,807
2045 137,171 36,013 687 605 174,476 12,631 10,053 13,121
2050 159,723 40,202 731 698 201,354 14,157 11,230 14,610
2055 186,143 44,896 763 806 232,608 15,867 12,545 16,261
2060 216,118 50,013 741 929 267,801 17,774 13,996 18,106

Footnotes

Footnote 1

The projected basic OAS pension expenditures and average benefits are on a gross basis; that is, before application of the OAS Recovery Tax. The GIS and Allowance expenditures and average benefits account for TFSAs. All expenditures include benefits paid outside of Canada.

Return to footnote 1 referrer

Table 6 Expenditures as a Percentage of GDP (Projected)
Year Gross Domestic Product
($ billion)
Expenditures as % of Gross Domestic Product(1)
OAS
(%)
GIS
(%)
Allowance
(%)
Administrative
Expenses
(%)
Total
(%)
2010 1,622 1.73 0.48 0.03 0.01 2.25
2011 1,641 1.80 0.53 0.04 0.01 2.37
2012 1,705 1.84 0.55 0.03 0.01 2.43
2013 1,770 1.87 0.56 0.03 0.01 2.47
2014 1,834 1.91 0.57 0.03 0.01 2.52
2015 1,900 1.95 0.58 0.03 0.01 2.56
2016 1,971 1.98 0.59 0.03 0.01 2.61
2017 2,049 2.01 0.60 0.03 0.01 2.65
2018 2,134 2.04 0.60 0.03 0.01 2.68
2019 2,226 2.08 0.61 0.03 0.01 2.73
2020 2,322 2.11 0.62 0.03 0.01 2.77
2021 2,421 2.14 0.63 0.03 0.01 2.81
2022 2,516 2.19 0.64 0.03 0.01 2.86
2023 2,613 2.23 0.65 0.02 0.01 2.91
2024 2,714 2.27 0.65 0.02 0.01 2.95
2025 2,820 2.30 0.66 0.02 0.01 3.00
2026 2,932 2.34 0.67 0.02 0.01 3.04
2027 3,051 2.37 0.68 0.02 0.01 3.08
2028 3,175 2.40 0.68 0.02 0.01 3.11
2029 3,305 2.42 0.69 0.02 0.01 3.14
2030 3,442 2.44 0.69 0.02 0.01 3.16
2031 3,583 2.44 0.69 0.02 0.01 3.16
2032 3,733 2.44 0.69 0.02 0.01 3.15
2033 3,889 2.43 0.68 0.01 0.01 3.14
2034 4,053 2.41 0.68 0.01 0.01 3.12
2035 4,223 2.40 0.67 0.01 0.01 3.10
2036 4,400 2.38 0.66 0.01 0.01 3.07
2037 4,587 2.36 0.65 0.01 0.01 3.04
2038 4,782 2.34 0.64 0.01 0.01 3.00
2039 4,983 2.31 0.63 0.01 0.01 2.96
2040 5,191 2.28 0.62 0.01 0.01 2.93
2045 6,343 2.16 0.57 0.01 0.01 2.75
2050 7,702 2.07 0.52 0.01 0.01 2.61
2055 9,349 1.99 0.48 0.01 0.01 2.49
2060 11,412 1.89 0.44 0.01 0.01 2.35

Footnotes

Footnote 1

The projected basic OAS pension expenditures are on a gross basis; that is, before application of the OAS Recovery Tax. The GIS and Allowance expenditures account for TFSAs. All expenditures include benefits paid outside of Canada.

Return to footnote 1 referrer

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.