Office of the Superintendent of Financial Institutions
We recommend that the Department of Finance and the Office of Superintendent of Financial Institutions (OSFI) seriously consider establishing the Chief Actuary's Department, separate from OSFI and reporting directly to the Minister of Finance or to the Minister of State for Finance.
In analysing the merits of this proposal, we must look at the two roles of the Chief Actuary with respect to the CPP: a statutory responsibility to prepare actuarial reports on the financial state of the CPP for tabling in Parliament, and the requirement to provide actuarial services to a number of government departments in their roles as policy makers and administrators of the CPP.
The Chief Actuary must exercise independent professional judgement in discharging these roles. To guard and reinforce this independence, the Chief Actuary does not report to the Ministers of any client departments that use his services and his Office has been established outside of and independent of those departments. To have the Chief Actuary report directly to a Minister would be a step backwards in this regard, and might even create the perception of a loss of professional independence; even where full independence was maintained and respected.
Therefore, I believe that the current location of the Office of the Chief Actuary is the best place within the government at the present time.
We recommend that adequate staff and financial resources be made available to the Chief Actuary's Department to allow more extensive "intervaluation" studies of emerging experience and continuing development of improved forecasting and modelling techniques for projecting future contributions and expenditures.
I agree; it is important that the Office of the Chief Actuary operates with adequate resources. The OCA is presently hiring additional staff. The staff working on the Canada Pension Plan will be doubled from three to six, so the OCA can conduct more extensive "intervaluation" studies and improve its forecasting and modeling techniques. As part of my commitment to ensuring the OCA has adequate resources, I will evaluate resource needs next year to determine if additional resources are required.
We recommend that consideration be given to establishing an Advisory Panel, to advise the Chief Actuary with respect to the assumptions to be used in actuarial reviews of the CPP; the Advisory Panel would be made up of senior and experienced professionals such as actuaries, economists and demographers.
I agree that the Chief Actuary should consult with experts – such as demographers and economists – before setting the assumptions to be used in his actuarial reports.
I am not convinced that a formal advisory panel is necessarily the best way to obtain views from experts. As a first step, the OCA will launch a series of seminars that will look at the impact of demographic and economic trends on the CPP. The success of this seminar in garnering the best advice available from Canadian experts will then be evaluated, and other methods of obtaining advice will be considered where appropriate.
We recommend that Revenue Canada be requested to provide the Chief Actuary with details of CPP contributions and earnings promptly after the end of the calendar year.
The OCA has begun discussions with Revenue Canada to seek solutions to this issue.
We recommend that Statistics Canada be asked to investigate what steps can be taken to improve the data on emigrants and returning emigrants.
It is important that the Chief Actuary continue the practice of consulting Statistics Canada in developing his actuarial projections and assumptions.
The Office of the Chief Actuary will take steps to develop a closer working relationship with Statistics Canada and seek to develop a common understanding between the two departments regarding the bases for each other’s population projections and their uses.
We recommend that, in future, additional sources of data, inside and outside of Canada and inside and outside of government, be reviewed to broaden, where appropriate, the data and considerations used to develop actuarial assumptions.
Information from a greater variety of sources can only benefit the Chief Actuary as he sets assumptions and selects the necessary data for his actuarial projections. Additional information could be obtained by purchasing economic analyses and forecasts from organisations such as the Conference Board. The series of seminars with outside experts (see response to Recommendation 3) should help identify potential sources of information.
We recommend that the Chief Actuary continue in future to improve the methodology. Examples are application of stochastic processes and development of objective criteria for selection of sensitivity tests.
Methodology used by the Office of the Chief Actuary has regularly been improved and this process will continue. Preliminary research on stochastic processes has been incorporated into the OCA’s business plan for 1999-2000 and the OCA will explore the feasibility of developing a stochastic model.
We recommend that HRDC be asked to investigate further the causes of apparent under-utilisation of widower's benefits and children's benefits and develop a long-term policy as to what actions it may take in this regard. The Chief Actuary could then take this policy into consideration in future actuarial reviews.
I support this recommendation. The Office of the Chief Actuary will be working closely with HRDC, which next year is planning to expand its national outreach program in order to reach segments of the population where there is low take-up of certain benefits. In addition, the CPP administration will begin to send out annual statements of contributions with CPP benefits information to all ten million CPP contributors.
We recommend that the Chief Actuary continue to produce high-cost and low-cost "combined" sensitivity tests in addition to the one-parameter-at-a-time sensitivity tests. These high-cost and low-cost estimates should each represent a plausible combination of assumptions and lead to a meaningful estimate.
The approach followed in completing the Seventeenth Annual Report was to provide hypothetical "best case" and "worst case" estimates, which did not necessarily represent plausible combinations of assumptions. After consultations with various departments, the Chief Actuary and I have concluded that he should develop low-cost and high-cost estimates that will represent more plausible combinations of assumptions in the next actuarial review of the Canada Pension Plan.
However, there is some risk of misunderstanding the plausible low-cost and high-cost scenarios. The Office of the Chief Actuary will watch carefully the reaction of stakeholders to the next report and will take any appropriate steps to improve this process further.
We recommend that the calculation of the steady-state contribution rate should continue to be based on the Chief Actuary's best estimate derived independently from the high-cost and low-cost estimates.
I fully agree with this recommendation, as does the Chief Actuary. The OCA will continue to calculate the steady-state contribution rate independently of the low- and high-cost estimates in future reports.
It is normal practice among actuaries to arrange for the "peer review" of actuarial reports prior to the release of those reports.
We recommend that, for future actuarial reviews of the CPP, a rigorous and complete peer review process be adopted, with appropriate time allowed for expert and objective analysis of data, assumptions and methodologies as well as report preparation.
I am pleased with the value added by the independent peer review of the Seventeenth Annual Report and believe that independent peer reviews should continue. However, I prefer that peer reviews be conducted following the release of statutory actuarial reports. These reviews should consider the data, methodology, assumptions and presentation used in the reports. A peer review prior to the release of reports would considerably slow the process and could delay the tabling of reports.
We recommend the inclusion of an Executive Summary in future Actuarial Reports.
I agree with this recommendation. An executive summary helps make the results of the review more accessible to stakeholders, which is why the Seventeenth Actuarial Report included a summary. Future reports will incorporate an executive summary as well.
We recommend that the full report be published separately in French and English, each in three volumes. One volume would contain the Executive Summary, a second would contain the major findings and the third would contain the technical material.
The OCA will take steps to improve upon the accessibility and user-friendliness of the next actuarial report on the Canada Pension Plan, and will consider the format recommended by the review panel when the report is prepared.