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Funding valuation history
Funding valuations must be filed with the pension regulator at least every three years. Valuation dates and voluntary filings are determined by the OTF and the Ontario government. Filings must show the plan has enough money to pay all future benefits to current plan members. For reference, all previously filed funding valuations and decisions made to use surplus or address shortfalls are detailed in this section. Assumptions used for each valuation are also reported below.
|
(as at January 1) ($ billions) | 2005 | 2003 | 2002 | 2001 | 2000 | 1999 | 1998 | 1996 | 1993 |
|---|
| Net assets |
$ 84.3 |
$ 66.2 |
$ 69.5 |
$ 73.1 |
$ 68.3 |
$ 59.1 |
$ 54.5 |
$ 40.1 |
$ 29.4 |
| Smoothing adjustment |
(1.5) |
9.7 |
3.0 |
(4.3) |
(7.3) |
(5.1) |
(6.0) |
(1.8) |
– |
| Value of assets |
82.8 |
75.9 |
72.5 |
68.8 |
61.0 |
54.0 |
48.5 |
38.3 |
29.4 |
| Future contributions |
|
|
|
|
|
|
|
|
|
| Current members |
16.7 |
14.7 |
13.7 |
14.4 |
13.4 |
12.0 |
12.6 |
14.5 |
14.3 |
| Scheduled contribution increases2 |
|
|
|
|
|
|
|
|
|
| Current members |
4.33 |
– |
– |
– |
– |
– |
– |
– |
– |
| Future members |
1.93 |
– |
– |
– |
– |
– |
– |
– |
– |
| Special payments4 |
– |
– |
– |
– |
– |
3.7 |
8.5 |
8.4 |
8.4 |
| Actuarial assets |
105.7 |
90.6 |
86.2 |
83.2 |
74.4 |
69.7 |
69.6 |
61.2 |
52.1 |
| Future benefits |
|
|
|
|
|
|
|
|
|
| Current members |
(105.6) |
(89.1) |
(84.3) |
(76.4) |
(69.8) |
(66.2) |
(62.8) |
(60.5) |
(50.6) |
| Surplus |
$ 0.1 |
$ 1.5 |
$ 1.9 |
$ 6.8 |
$ 4.6 |
$ 3.5 |
$ 6.8 |
$ 0.7 |
$ 1.5 |
|
|
|
1 Valuation dates determined by the plan sponsors.
|
|
2 The 2005 funding valuation showed a $6.1 billion shortfall. The plan sponsors announced contribution increases to address the shortfall, allowing a balanced funding valuation to be filed as required by the Ontario Pension Benefits Act.
|
|
3 To 2021.
|
|
4 Owed by the Ontario government to pay off the plan’s initial unfunded liability in 1990. The government used its portion of plan surpluses to pay off the value of these payments. |
|
(as at January 1) (%) | 2005 | 2003 | 2002 | 2001 | 2000 | 1999 | 1998 | 1996 |
1993 |
|---|
| Rate of return |
6.475 |
6.40 |
6.30 |
6.25 |
6.50 |
7.50 |
7.50 |
8.0 |
8.0 |
| Inflation rate |
2.750 |
2.05 |
1.90 |
2.20 |
2.25 |
3.50 |
3.50 |
4.0 |
4.01 |
| Real rate of return |
3.725 |
4.35 |
4.40 |
4.05 |
4.25 |
4.00 |
4.00 |
4.0 |
4.02 |
|
|
|
1 2.0% per year in 1993 and 1994 (select period) and 4.0% per year thereafter.
|
|
2 After select period.
|
The real rate of return (i.e., after inflation) is an assumption used in the funding valuation. It estimates the real rate at which the plan’s assets will grow in the future and is based on the yield on long-term Government of Canada Real-Return Bonds (RRBs) plus 0.5% when there is a surplus or 1.0% when there is a shortfall, as prescribed in the Funding Management Policy adopted in 2003. For the 2005 valuation filing, the plan sponsors and the board members of the Ontario Teachers’ Pension Plan agreed to increase the rate of return assumption to RRBs plus 1.625% for this filing only, and also agreed to four additional conditions.
Funding decisions
The OTF and the Ontario government have shared $18.6 billion in surpluses since 1990, and introduced the first contribution increases since 1990 to balance the plan in 2005. A history of plan funding decisions follows:
1993: $1.5 billion surplus; $1.2 billion used to reduce government’s special payments; $0.3 billion used to offset government cost reductions in the education sector (social contract days)
1996: $0.7 billion surplus; $0.6 billion used to reduce early retirement penalty to 2.5% from 5% for each point short of 90 factor and lower the CPP reduction after age 65 (to 0.68% from 0.7%) and for a change in the annual contribution limit
1998: $6.8 billion surplus; $2.2 billion to pay for the 85 factor window from 1998 to 2002 and further lower the CPP reduction to 0.6%; $4.6 billion to reduce the value of special payments owed by the government; OTF and Ontario government agree future surplus would be used to eliminate the government’s remaining special payments, and the next $6.2 billion would be available to the OTF for benefit improvements
1999: $3.5 billion surplus; $3.5 billion to eliminate government’s remaining special payments
2000: $4.6 billion surplus; no changes to benefits or contribution levels
2001: $6.8 billion surplus; $6.2 billion to pay for benefit improvements: permanent 85 factor; 10-year pension guarantee; reduced pension as early as age 50; lower CPP reduction (to 0.45%); 5-year average Year’s Maximum Pensionable Earnings (YMPE) to calculate CPP reduction; pension recalculation based on approximate best-5 salary for older pensioners; and top-up waived for Long-Term Income Protection (LTIP) contributions; of the $6.2 billion, $76 million was set aside in a contingency reserve to be used by the OTF at a later date
2002: $1.9 billion surplus; no changes to benefits or contribution levels
2003: $1.5 billion surplus; no changes to benefits or contribution levels; Funding Management Policy adopted by plan sponsors
2005: $0.1 billion surplus; plan sponsors introduced contribution rate increases, totalling 3.1% of base earnings by 2009, for teachers and the Ontario government to close a $6.1 billion funding gap identified in the 2005 valuation; the OTF used the $76 million contingency reserve set aside in 2001 to reduce contribution rate increases for members in 2008
2008: $12.7 billion preliminary shortfall at January 1, 2008; final funding valuation must be filed with the pension regulator by September 2008
Impact of increasing life expectancy
Longer life expectancy increases the cost of future pensions. The table below shows how longevity has impacted the cost of future pensions for each filed valuation. There has been a 9% increase in the projected cost of future pensions since 1993 due to increased life expectancy.
|
|
| 1993 |
24 years |
28 years |
$776,000 |
| 1996 |
24 years |
29 years |
$784,000 |
| 1998 |
24 years |
29 years |
$784,000 |
| 1999 |
24 years |
29 years |
$784,000 |
| 2000 |
24 years |
29 years |
$784,000 |
| 2001 |
25 years |
29 years |
$788,000 |
| 2002 |
28 years |
30 years |
$806,000 |
| 2003 |
28 years |
30 years |
$807,000 |
| 2005 |
28 years |
30 years |
$811,000 |
| 2008** |
30 years |
33 years |
$845,000 |
|
|
*Costs and life expectancy reflect plan experience from 1993 to 2008 and are based on: $40,000 starting pension at age 57
(for a female pensioner with a 60-year-old spouse); 50% survivor pension; 2.2% inflation rate; and 2.95% real discount rate.
**Preliminary valuation results incorporating strengthened mortality assumptions recommended in an independent review of the plan’s assumptions. |
