Question

1. The Retirement Income System (20%):

• What are the three pillars of Canada’s RIS and what are their functions?
• What are the main objectives of Canada’s RIS? What are the indicators for measuring Canada’s success in meeting these objectives? Describe the indicators and compare them.
• According to OECD data, how does Canada compare to the United States and the OECD average in terms of rates of old-age poverty and retirement income replacement? How does Canada compare to the United States and the OECD average in terms of replacement for someone with career average earnings equal to 50%, 100% and 150% of the average national wage? Produce excel bar charts to visualize these comparisons.
• According to the most recent Statistics Canada data on absolute and relative poverty measures, how does the absolute poverty rate of Canada’s elderly compare to that of other age groups? How about for the measure of relative poverty? Do the measures differ by sex, and if so, what might explain that? Use Statistics Canada’s public-use data to line-plot the trends over the available reference period.
• Building from the above two bullet points: how well does Canada appear to meet it’s RIS objectives, and which subsets of Canadians need to be most wary when preparing for retirement?

Answer 1

Part 1 & 2 of question -

THE THREE PILLARS OF CANADA'S RETIREMENT INCOME SYSTEM -

3 PILLARS	FUNCTIONS
Universal government benefits for seniors	Universal Old Age Security (OAS) Guaranteed Income Supplement (GIS) Spouses Allowance (SPA)
Canada Pension Plan	Federal government and Provinces are joint stewards of the CPP Provides retirement, survivor, and disability benefits Universal coverage of all workers in all industries Employees and employers make equal contributions (4.95% each – 9.9% combined) on earnings up to annual maximum of $47,200 (2010) Defined Benefit – up to 25% of the average wage Fully portable Inflation-indexed to CPI Actuarially sound for the next 75 years CPPIB invests assets of $123.9 billion
Employment Pension Plans and Individual Retirement Savings	Voluntary plans sponsored by an employer or union Defined Benefit (DB), Defined Contribution (DC) or Hybrid Maximum DB pension accrual is $2,494 per year of service (2010) Subject to federal or provincial pension benefits standards legislation Contributions are tax deductible and investment income is tax deferred Benefits are taxable Traditional DB coverage has been gradually declining

Part 3 of question -

TWO MAIN OBJECTIVES OF CANADA'S RIS -

• Alleviate poverty among the elderly
• Help people avoid a serious decline in their standard of living as they transition from employment to and through the retirement period.

Part 4 of question -

Success of Canada's RIS -

1. Diversification

• Canadian retirement system is a three-tiered system with mixed funding approaches
  • Old Age Security Program
  • Canada / Québec Pension Plan
  • Occupational Pension Plans and tax-favoured individual savings
• Today, first two pillars replace about 40% of pre-retirement earnings for an individual with average level of earnings.
• Canadian retirement income system is well recognized in the world for its capacity to adapt rapidly to changing conditions.

2. Tackling poverty

• Income from all 3 pillars is necessary to guarantee Canadian seniors decent lives in retirement.
• Jean-Claude Ménard, Chief Actuary, Office of the Chief Actuary, Office of the Superintendent of Financial Institutions in the CIA Annual Meeting Report tables the following -

3. Good governance

• 1997 CPP changes strengthened governance framework
• Self-adjustment provisions of CPP serve as a safety net in case of political impasse
• External peer review of CPP Actuarial Reports enhance independence of the Chief Actuary
• TORs of independent peer review address main factors that ensure high quality of actuarial work