These days, people are living longer than ever. Not only are we living longer, the rate at which our longevity is improving and increasing as well. This has a big impact on pension plans.
Recently, the Canadian Institute of Actuaries developed a Canadian based mortality table for pension purposes: The Canadian Pensioner Mortality table, and an associated rate of improvement scale.
How does this affect your pension plan?
Beginning October 1, 2015, the Actuarial Standards Board in Canada is expected to confirm the use of this new table for the commuted values of pensions arising on member termination from a pension plan. Assuming the Ontario regulators also adopt the changes, what will happen?
Compared to the current mortality assumption in use for commuted values and solvency valuations, the new mortality assumption could increase commuted values and solvency liabilities by four to twelve percent, depending on the pension plan and its membership.
Why is this important?
It reflects that Canadians are living longer, and if they are living longer, they will collect pensions longer and pension plans need to recognize this fact and fund for it as well. A solvency valuation generally represents a hypothetical wind-up of the pension plan and regulators and actuaries want to equip plans with the best information available to assist plans in meeting all of their benefit obligations. With a lot of pension plans’ solvency liabilities exceeding their solvency assets, the change could mean larger deficits and additional funding will be required to cover the deficit.
It is important to remember that even though you may not have a pension plan valuation due for some time, the change will also cover commuted values. This means termination calculations will have to be performed with this change in mind.
The Mondelis team has been providing customers with expert actuarial consulting services since 1989. We are here to address any pension related questions or concerns you may have. Please contact us today at 519-579-1255 or email firstname.lastname@example.org.