Measuring and reporting the actuarial obligations of the Canada Pension Plan

Abstract

The processes used to assess the financial sustainability of the Canada Pension Plan (CPP) and the corresponding reporting are recognized internationally as “best practices”. In the context of the international and multi‐disciplinary debate about the most appropriate methodology for the measuring and reporting of social security assets and obligations, the experience and practices of Canada offer a number of important policy lessons. The article analyses the assets and obligations of the CPP using different actuarial balance sheet methodologies, i.e. open and closed group. It concludes that the balance sheets under the closed‐group with and without future benefit accruals methodologies do not reflect the nature of the partial funding approach of the CPP, whereby future contributions represent a major source of financing for future expenditures. As such, it is inappropriate to reach a conclusion regarding the Plan's financial sustainability considering only the asset shortfalls determined under the closed group with and without future accruals balance sheets. The article asserts that measuring the Plan's assets and obligations using the open‐group approach provides information that properly reflects how changing demographic and economic environments affect the long‐term sustainability of the CPP. In contrast, using the closed group without future accruals approach may provide incomplete or even misleading information. Finally, the article discusses approaches used to report the financial state of the CPP, including both actuarial and financial reporting. It highlights the comprehensive disclosures approach adopted for the purpose of CPP annual reports and the Public Accounts of Canada.

Pension Fund Calculation Using Traditional and Projected Unit Credit Methods for Total Actuarial Liability and Normal Cost Cases

“…The purpose of solving the questions that will be discussed is of course to know and be able to perform actuarial calculations on traditional unit credit, understand and be able to perform calculations on several methods of calculating the projected salary scale, and understand and be able to perform actuarial calculations based on the projected unit credit cost method. The problem is solved by means of Traditional Unit Credit (TUC) and Projected Unit Credit (PUC) (Lutz & Sheiner, 2014;Morais, 2010;D'Ambrogi-Ola & Brown, 2018;Cho, et al, 2014;Billig & Ménard, 2018). Usefulness for the user himself is to find out how much is the actuarial liability and what is the normal cost based on the data provided.…”