Presentations Slides - Living to 100will the Canada ... Calculate the minimum contribution rate ... 1901 1911 1921 1931 1941 1951 1961 1971 1981 1991 2001 ... 1929-1969 1969-1989 1989-2009

Office of the Chief Actuary Bureau de l’actuaire en chef

Confidential Protected B

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Living to 100…will the Canada Pension Plan be sustainable?

Jean-Claude Ménard, Chief Actuary

Office of the Chief Actuary

Office of the Superintendent of Financial Institutions Canada

27 October 2014, Orlando, United States



Presentation Outline

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• 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



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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.



• 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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So, what is about living to 100 and CPP?

Canadian Cohort Life Expectancy Males Females

• Age 65 in 2013 20.9 years 23.3 years

• Age 65 in 2050 23.0 years 25.3 years

+2 years



Life Expectancy at Birth (Calendar)

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Source : Canadian human Mortality Database, University of Montreal

0

2

4

6

8

10

12

14

45

50

55

60

65

70

75

80

85

1901 1911 1921 1931 1941 1951 1961 1971 1981 1991 2001 2006 2009

Difference

Males

Females

Life Expectancy Difference



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

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Males Females

Change attributable to

(in years) 1929-1969 1969-1989 1989-2009 1929-1969 1969-1989 1989-2009

Infant mortality (<1) 6.0 1.0 0.2 4.8 0.8 0.1

Child mortality (1-14) 2.9 0.4 0.1 2.9 0.3 0.1

Young adult mortality

(15-44) 2.3 0.7 0.7 4.0 0.5 0.2

Older adult mortality

(45-64) 0.5 1.5 1.4 2.2 0.9 0.6

Elderly mortality

(65+) 0.8 1.3 3.0 3.2 2.0 2.0

Estimated

Multivariate Effect -0.2 -0.1 -0.3 -0.4 -0.2 -0.1

Total Change in Life

Expectancy 12.4 4.7 5.1 16.7 4.4 3.0

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

calculations.



Improvements in mortality related to heart diseases

have been significant over the last 15 years

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Source: Data from Statistics Canada, Health Division and OCA Calculations

Standardized Using 2001 Canadian Population



Life Expectancy at Age 65 (Calendar)

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Source : Canadian human Mortality Database, University of Montreal

0

2

4

6

8

10

12

14

10

12

14

16

18

20

22

24

1901 1911 1921 1931 1941 1951 1961 1971 1981 1991 2001 2006 2009

Difference

Males

Females

Life Expectancy Difference



Heat map of historical and projected mortality

improvement rates for males

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Deterioration due to

Accidents

Deterioration

due to AIDS

Cohort Effect



Heat map of historical and projected mortality

improvement rates for females

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Significant

Improvements

in mothers’

health



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

Ages 15-54



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

Ages 55-64



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

Ages 65-74



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

Ages 75-84



Elderly Mortality Rates have decreased over the last 80

years, more so over the last 10 years

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Ages 85-89



For ages over 90, heart diseases remain the main

cause of deaths

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Ages 90+



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

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• 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.



The likelihood of premature mortality decreased dramatically

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Evolution of Distribution of Age at Death (15th to 85th Percentile)

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.

0

1

2

3

4

5

6

7

8

9

10

11

12

13

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

1959 1969 1979 1989 1999 2009 2019 2029 2039 2049 2059

Difference

Males

Females

Males - Valuation Model

Females - Valuation Model

Life expectancy at 65 Difference



Uncertainty of Results

Life Expectancies at age 65 if MIRs by cause are sustained

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CPP26

Projections

Annual Improvement

Rates 2010+ Males Females

Diseases of the heart 4.6% 4.1%

Malignant Neoplasms 1.3% 0.2%

Other Causes 1.7% 0.7%



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Uncertainty of Results: Life Expectancies at 65 if heart

diseases and cancer gradually removed over 75 years

Annual

Improvement Rates

for other causes Males Females

2010 1.7% 0.7%

2030 + 0.35% 0.35%

CPP26

Projections



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

Current Canadians are expected to live to age 90

with probability of more than 40% Probability of living to 90 for Canada, the U.S. and the U.K.



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

0%

10%

20%

30%

40%

50%

60%

70%

80%

0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95Age in 2012

Canada

US

UK

Can We Live Beyond 100 Years?

Probability of living to 100 for Canada, the U.S. and the U.K.



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Survival Curves for a Life Expectancy of 100 (Males)

e0 = 80 e0 = 100



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

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• 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.



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

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• 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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Appendix

Mortality Projections of Public Pension Plans in Canada and its

financial implications

27 October 2014, Orlando, United States



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

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

of University of Montreal

0.0

0.5

1.0

1.5

2.0

2.5

3.0

1949-1979 1979-1994 1994-2009 2009-2024 1949-1979 1979-1994 1994-2009 2009-2024

15-64

65-89

MALES FEMALES



CPP26 Annual Mortality Improvement Rates (%)

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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

Males

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

Females

• 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

Age less than 1



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

Ages 1-14



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

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12 13 14 15 16 17 18 19 20 21 22 23

Canada

Japan

Finland

France

Germany

Netherland

Norway

Poland

Portugal

Quebec

Slovakia

South Korea

Sweden

Switzerland

UK

US

Life expectancy at age 65 - Males

2010

2020

2030

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



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

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15 16 17 18 19 20 21 22 23 24 25 26

Canada

Japan

Finland

France

Germany

Netherland

Norway

Poland

Portugal

Quebec

Slovakia

South Korea

Sweden

Switzerland

UK

US

Life Expectancy at age 65 - Females

2010

2020

2030

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



Uncertainty of results: mixed stochastic/deterministic

approach produces wide range of life expectancies Mortality

Improvement

rates

Cohort Life Expectancy in 2050

Stochastic

10th Percentile

Deterministic

Expected

Stochastic

90th Percentile

Best Estimate Males 21.0 23.0 24.9

Females 23.4 25.3 27.1

Reducing

Alternative

(-0.2%/year)

Males 20.7 22.5 24.4

Females 22.9 24.8 26.7

Increasing

Alternative

(+0.2%/year)

Males 21.8 23.6 25.6

Females 24.0 25.9 27.7

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Low cost: 10th percentile of stochastic

simulation centered over mortality rates

under lower MIRs

High cost: 90th percentile of stochastic

simulation centered over mortality rates

under higher MIRs

Minimum Contribution Rate

Low-Cost 9.46%

Best-Estimate 9.84%

High-Cost 10.22%



Survival Curves for a Life Expectancy of 100 (Females)

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e0 = 84 e0 = 100



To live beyond 100…

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• 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

Documents

Presentations Slides - Living to 100will the Canada ... Calculate the minimum contribution rate ... 1901 1911 1921 1931 1941 1951 1961 1971 1981 1991 2001 ... 1929-1969 1969-1989 1989-2009