Actuarial Report (13th) supplementing the Actuarial Report on the Old Age Security Program as at 31 December 2012

Document Properties

• Type of Publication: Actuarial Report
• Date: 15 July 2016

The Honourable Jean-Yves Duclos, P.C., M.P.
Minister of Families, Children and Social Development
House of Commons
Ottawa, Canada
K1A 0G5

Dear Minister:

In accordance with section 4 of the Public Pensions Reporting Act, which provides that an actuarial report shall be prepared by the Chief Actuary when an amendment to the Old Age Security Act that affects the cost of benefits is introduced in the House of Commons, I am pleased to submit the 13^th Actuarial Report on the Old Age Security program.

Yours sincerely,

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

I. Executive Summary

This is the 13^th 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 of the Public Pensions Reporting Act is the 12^th Actuarial Report on the Old Age Security (OAS) Program as at 31 December 2012, which was tabled in the House of Commons on 20 August 2014. Therefore, this 13^th Actuarial Report has been prepared on the basis of the 12^th Actuarial Report to show the effect of Division 9 of Part 4 of Bill C-15 on the long-term financial status of the OAS program.

Division 9 of Part 4 of Bill C-15, An Act to implement certain provisions of the budget tabled in Parliament on March 22, 2016 and other measures, received Royal Assent on 22 June 2016. Starting 1^st of July 2016, it amends the Old Age Security Act to increase the single rate of the Guaranteed Income Supplement (GIS) top-up for the lowest income pensioners by up to $947 annually.

For the lowest-income individuals who receive the GIS top-up for single seniors, seniors whose spouse is not a pensioner, and persons receiving the Allowance for the Survivor, this amendment more than doubles the maximum GIS top-up and represents a 10 percent increase in the total maximum GIS benefit available to the lowest-income single seniors.^{Footnote 1} The increased top-up will be reduced by 25 cents for every dollar of income in excess of $2,000 for single individuals and therefore, no top-up is payable for single individuals after the annual income reaches about $8,400, or combined annual income of $16,800 for a couple in the case where the spouse is not a pensioner. The increased top-up will be indexed in line with increases in the Consumer Price Index (CPI).

Division 9 of Part 4 of Bill C-15 also repeals section 2.2 of the Old Age Security Act, which increases the ages of eligibility for the OAS basic pension and the GIS benefit from 65 to 67 and Allowance benefits from 60 to 62 over the 2023 to 2029 period.

Main Findings

This 13^th OAS Program Actuarial Report shows the following:

Increasing the GIS Top-Up Benefit

• The increase in GIS and Allowance expenditures is projected to be $315 million in 2016 and $775 million by 2020. GIS and Allowance expenditures are thus projected to be $3.2 billion higher than under the 12^th OAS Program Actuarial Report over the period 2016 through 2020.
• The projected number of GIS and Allowance beneficiaries who will receive the full or a partial additional top-up benefit is estimated to grow from 813,000 in 2016 to 925,000 by 2020.
• By 2030, GIS and Allowance expenditures are projected to be $1.2 billion or 0.03% of the GDP higher than projected under the 12^th OAS Program Actuarial Report.

Cancelling the Increase in Ages of Eligibility

• By 2030, cancelling the increase in the ages of eligibility for OAS benefits is projected to increase the number of beneficiaries of the OAS basic pension by 1 million and increase the number of GIS and Allowance beneficiaries by 187,000.
• By 2030, cancelling the increase in the ages of eligibility is projected to increase total program expenditures by $10.4 billion. This represents an increase of 0.3% of GDP.

All Amendments

• Taken together, the amendments are projected to increase total program expenditures by $11.6 billion by 2030, which represents an increase of 0.33% of GDP.

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.”

The most recent report made pursuant to section 3 of the Public Pensions Reporting Act is the 12^th Actuarial Report on the Old Age Security (OAS) Program as at 31 December 2012, which was tabled in the House of Commons on 20 August 2014. Therefore, this 13^th Actuarial Report has been prepared on the basis of the 12^th Actuarial Report to show the effect of Division 9 of Part 4 of Bill C-15 on the long-term financial status of the OAS program.

III. Description of Division 9 of Part 4 of Bill C-15

Division 9 of Part 4 of Bill C-15, An Act to implement certain provisions of the budget tabled in Parliament on March 22, 2016 and other measures, received Royal Assent on 22 June 2016. Starting 1^st of July 2016, it amends the Old Age Security Act to increase the single rate of the GIS top-up for the lowest income pensioners by up to $947 annually.

For the lowest-income individuals who receive the GIS top-up for single seniors, seniors whose spouse is not a pensioner, and persons receiving the Allowance for the Survivor, this amendment more than doubles the maximum GIS top-up and represents a 10 percent increase in the total maximum GIS benefits available to the lowest-income single seniors.^{Footnote 2} The increased top-up will be reduced by 25 cents for every dollar of income in excess of $2,000 for single individuals and therefore, no top-up is payable for single individuals after the annual income reaches about $8,400, or combined annual income of $16,800 for a couple in the case where the spouse is not a pensioner. The increased top-up will be indexed in line with increases in the Consumer Price Index (CPI).

Division 9 of Part 4 of Bill C-15 also repeals section 2.2 of the Old Age Security Act, which increases the ages of eligibility for the OAS basic pension and the GIS benefit from 65 to 67 and Allowance benefits from 60 to 62 over the 2023 to 2029 period.

IV. Financial Status

Unless stated otherwise, the financial estimates presented in this report use the same actuarial assumptions and methods as per the 12^th OAS Actuarial Program Report as at 31 December 2012.

The financial estimates in this report are presented in three sequential steps. First, the impact of increasing the top-up for the single rate GIS and Allowance for the Survivor benefits, effective 1 July 2016, is presented. These estimates are shown relative to the best-estimate projections of the 12^th OAS Program Actuarial Report. Next, the impact of cancelling the increase in the ages of eligibility for OAS benefits between 2023 and 2029 is presented relative to the increase in the top-up. Finally, the total impact of the amendments is presented relative to the 12^th OAS Program Actuarial Report.

1. Impact of Increasing the GIS and Allowance Top-Up

A. Assumptions and Methods

The increase in the top-up benefit in conjunction with keeping the reduction rate at 25% on income above $2,000 results in an increase in the upper income limit where the top-up benefit ceases to be payable. For example, in the case of the GIS benefit for single seniors, the income limit to receive the top-up increases from about $4,600 to $8,400 (see Chart 1). As such, for the purpose of this report, GIS for single seniors, GIS for seniors whose spouse is not a pensioner, and Allowance for the Survivor beneficiaries already projected to receive the current top-up (full or partial) are assumed to all receive the maximum additional top-up of $947 per year.

Chart 1 - New Income Limits for Top-Up Benefit (GIS for Single Seniors) – 2016

The overall number of seniors eligible to receive the GIS single rate benefits and Allowance for the Survivor benefit is not projected to change because of the increased top-up. However, the number of such beneficiaries eligible to the top-up is assumed to increase as a result of the increase in the income limit to receive the top-up.

Using our July 2015 OAS beneficiaries database, we have developed assumptions on the proportions of beneficiaries by age, sex and type of benefit who currently do not receive a top-up benefit but who would now become entitled to receive at least a portion of the additional top-up benefit (see Chart 1). The projected average additional partial top-up benefits were also determined for these individuals. Table 1 shows the assumed proportions of male and female beneficiaries becoming entitled to a partial top-up benefit and the average top-up benefit expressed as a percentage of the maximum additional top-up benefit.

Table 2 presents illustrative impacts on the GIS amounts payable before and after the amendment that increases the top-up for single individuals as they are depicted in Chart 1 above for typical income levels.

Table 2 - Illustrative Impact on GIS Single Benefit Payable¹ (2016)

	Illustrative Impacts for Individuals From Chart 1
	Annual Income Level ($2016)
	No Income	1,000	3,500	6,500	13,000
GIS Single	Annualized Average GIS ($2016)
Base	8,825	8,325	7,075	5,575	2,325
Top-Up	645	645	270	-	-
Total	9,470	8,970	7,345	5,575	2,325
	New Annualized Average GIS ($2016)
Base	8,825	8,325	7,075	5,575	2,325
Top-Up	1,592	1,592	1,217	467	-
Total	10,417	9,917	8,292	6,042	2,325
	Annualized Increase in GIS (2016)
Base	-	-	-	-	-
	-	-	-	-	-
Top-Up	$947	$947	$947	$467	-
	147%	147%	351%	N/A	-
Total	$947	$947	$947	$467	-
	10.0%	10.6%	12.9%	8.4%	-
Table 2 Footnote 1 Estimated based on projected GIS Single annualized maximum rate for 2016 for someone receiving the maximum OAS basic pension. Return to footnote 1 referrer

B. Results

Impact on Overall OAS Program Financial Status

Table 3 shows the financial status of the OAS program as presented in the 12^th OAS Program Actuarial Report as at 31 December 2012. Table 4 presents the same information but amended for the increase in the GIS and Allowance top-up, while Table 5 presents the change in the financial status due to the increase in the top-up.

Table 5 reveals that over the first five years expenditures are projected to increase from $315 million in 2016 to $775 million in 2020. This represents an overall increase in expenditures of $3.2 billion over that period relative to the 12^th OAS Program Actuarial Report. By 2030, expenditures are projected to be $1.2 billion higher than under the 12^th OAS Program Actuarial Report or 0.03% higher relative to the GDP. The total number of program beneficiaries remains unchanged.

Detailed Impact on GIS and Allowance Beneficiaries

Tables 6 and 7 show the projected number of GIS and Allowance beneficiaries as presented in the 12^th OAS Program Actuarial Report as at 31 December 2012 and as amended by the increase in the top-up benefit. For comparison purposes, Table 8 shows the differences between these two tables.

Tables 6 through 8 reveal that, over the first five years, the total number of beneficiaries who will receive either the full or partial additional top-up benefit (see Table 7) is projected to grow from 813,000 to 925,000. This comprises an increase from 514,000 to 584,000 of the number of current top-up beneficiaries (Table 6) who would receive the full additional top-up and an increase from 299,000 to 341,000 (Table 8) of the number of new top-up beneficiaries who would receive a partial additional top-up.

By 2030, about 1.2 million beneficiaries (Table 7) are projected to receive a top-up benefit, which represents an increase of about 445,000 (Table 8) in the number of beneficiaries receiving a top-up benefit compared to the 12^th OAS Program Actuarial Report projections. Of these new additional 445,000 top-up beneficiaries, about 417,000 would receive the GIS for single seniors, 25,000 would receive the GIS for seniors whose spouse is not a pensioner, and 3,000 would receive the Allowance for the Survivor.

Detailed Impact on GIS and Allowance Expenditures

Table 9 shows the projected GIS and Allowance expenditures by type of benefit as presented in the 12^th OAS Program Actuarial Report as at 31 December 2012 and as amended by the increase in the top-up benefit. For comparison purposes, Table 10 shows the change in expenditures resulting from the increase in the top-up benefit. Note that these tables exclude persons who are unaffected by the amendment – GIS recipients whose spouse is a pensioner or Allowance recipient, and recipients of the regular Allowance.

Table 10 reveals that, over the first five years, the increase in GIS single expenditures is projected to grow from $289 million in 2016 to $716 million in 2020. By 2030, GIS single expenditures are projected to be $1.1 billion or about 8% higher than projected under the 12^th OAS Program Actuarial Report.

Table 10 also reveals that, over the first five years, the increase in GIS spouse not a pensioner expenditures is projected to grow from $22 million in 2016 to $52 million in 2020. By 2030, GIS spouse not a pensioner expenditures are projected to be $78 million or about 8% higher than projected under the 12^th OAS Program Actuarial Report.

Finally, Table 10 shows that, over the first five years, the increase in Allowance for the Survivor expenditures is projected to grow from $4 million in 2016 to $7 million in 2020. In 2030, Allowance for the Survivor expenditures are projected to be $7 million or about 4.5% higher than projected under the 12^th OAS Program Actuarial Report.

2. Impact of Cancelling Increase in Ages of Eligibility

A. Assumptions and Methods

For the purpose of cancelling the provisions in the Old Age Security Act that increase the ages of eligibility for the OAS basic pension and the GIS benefit from 65 to 67 and Allowance benefits from 60 to 62 over the 2023 to 2029 period, the age of eligibility for the OAS basic pension and GIS benefit is assumed to remain at 65 and to remain at age 60 for Allowance benefits throughout the projection period.

B. Results

Table 11 presents the financial status of the OAS program as amended for the increase in the single rate GIS and Allowance for the Survivor top-up benefits (see Section 1 above) as well as for cancelling the increase in the ages of eligibility.

Table 12 shows the difference between Tables 11 and 4, which allows for the measurement of the impact of cancelling the increase in the ages of eligibility after increasing the top-up benefit. Table 12 reveals that cancelling the increase in the ages of eligibility is projected to result in 109,000 additional beneficiaries receiving the OAS basic pension in 2023 and about 1 million more beneficiaries by 2030. Cancelling the increase in the ages of eligibility is also projected to result in 19,000 additional GIS and Allowance beneficiaries in 2023 and about 187,000 more by 2030.

Total expenditures are projected to increase by $439 million in 2023 and by $10.4 billion in 2030. As such, by 2030, expenditures expressed as a percentage of the GDP would be higher by about 0.3% of the GDP compared to only increasing the top-up benefit.

3. Impact of All Amendments

Table 13 shows the difference between Tables 11 and 3 and enables the measurement of the impact of all amendments.

The number of program beneficiaries is not projected to increase over the period 2016 through 2022. Thereafter, due to the cancellation of the increase in the ages of eligibility, the number of beneficiaries of the OAS basic pension gradually increases by about 1 million by 2030, and the number of GIS and Allowance beneficiaries gradually increases by about 187,000 by the same year.

Both amendments are projected to increase total program expenditures by $11.6 billion in 2030, which represents an increase of 0.33% of GDP. Chart 2 illustrates the cost of the OAS program expressed as a percentage of the GDP under the 12^th OAS Program Actuarial Report, after the amendment for the top-up benefit, and after all amendments.

Chart 2 - OAS Program Expenditures as a Percentage of GDP

V. Conclusion

This 13^th OAS Program Actuarial Report shows the following:

Increasing the GIS Top-Up Benefit

• The increase in GIS and Allowance expenditures is projected to be $315 million in 2016 and $775 million by 2020. GIS and Allowance expenditures are thus projected to be $3.2 billion higher than under the 12^th OAS Program Actuarial Report over the period 2016 through 2020.
• The projected number of GIS and Allowance beneficiaries who will receive the full or a partial additional top-up benefit is estimated to grow from 813,000 in 2016 to 925,000 by 2020.
• By 2030, GIS and Allowance expenditures are projected to be $1.2 billion or 0.03% of the GDP higher than projected under the 12^th OAS Program Actuarial Report.

Cancelling the Increase in Ages of Eligibility

• By 2030, cancelling the increase in the ages of eligibility for OAS benefits is projected to increase the number of beneficiaries of the OAS basic pension by 1 million and increase the number of GIS and Allowance beneficiaries by 187,000.
• By 2030, cancelling the increase in the ages of eligibility is projected to increase total program expenditures by $10.4 billion. This represents an increase of 0.3% of GDP.

All Amendments

• Taken together, the amendments are projected to increase total program expenditures by $11.6 billion by 2030, which represents an increase of 0.33% of GDP.

VI. Actuarial Opinion

In our opinion, considering that this 13^th Actuarial Report on the Old Age Security Program 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 methods employed are appropriate for the purposes of this report.

This report has been prepared, and our opinions given, in accordance with both accepted actuarial practice in Canada, in particular, the General Standards of Practice of the Canadian Institute of Actuaries, and internationally accepted actuarial practice as provided by the International Standards of Actuarial Practice for General Actuarial Practice (ISAP 1) and Financial Analysis of Social Security Programs (ISAP 2) of the International Actuarial Association.

Ottawa, Canada
15 July 2016

Appendix A – Detailed Tables of Projections Including All Amendments

Appendix B – Acknowledgements

Service Canada provided statistics on the Old Age Security program.

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

The following people assisted in the preparation of this report:

Patrick Dontigny, A.S.A.
Sari Harrel, F.S.A, F.C.I.A.
Kelly Moore
Louis-Marie Pommainville, F.S.A, F.C.I.A.