Ontario Teachers’ Pension Plan achieves 10.9% return for 2013
Net assets reach record $140.8 billion; Pension plan is 103% funded
Ontario Teachers' Pension Plan (Teachers') today announced a rate of return of 10.9% for the year ended December 31, 2013, boosting net assets to a record $140.8 billion from $129.5 billion at the end of 2012.
The plan exceeded its consolidated investing benchmark of 9.3% by 1.6 percentage points, representing $2.1 billion in value added. Investment earnings for 2013 were $13.7 billion, versus $14.7 billion in 2012. Since the plan's inception in 1990, total investment income generated has accounted for 77% of the funding of the pensions of our members, with the other 23% coming from member and government contributions.
"Our portfolio of assets performed very well in 2013 and outperforming our benchmark further adds to the sustainability of our plan and supports our goal of retirement security," said Ron Mock, President and Chief Executive Officer. "The agility and innovation for which our investment team is known will be important in the future, as we face an increasingly competitive investment landscape."
"Our rate of return since inception is 10.2%," he said. "These results show the benefits of our long-term global outlook, strong risk management and diversified portfolio." According to CEM Benchmarking's latest data, for the 10 years ending in 2012, Teachers' total returns and value-added returns were the highest among large global peer pension funds.
CEM's rankings also had Teachers' in first place for pension service among global pension funds. Teachers' Quality Service Index, which measures members' satisfaction with our Member Services group based on survey responses, also remained high at 9.1 out of 10 in 2013.
The combination of continued strong investment returns and an increase in interest rates resulted in a preliminary funding surplus of $5.1 billion at January 1, 2014, the plan's first preliminary surplus in 10 years. The plan was 103% funded at the start of this year, based on current contribution and benefit levels.
Mr. Mock credits the plan's sponsors, Ontario Teachers' Federation and the Ontario government, with taking positive steps in recent years to de-risk the plan and add flexibility to benefits, for example making inflation protection dependent on the financial health of the plan. "Other plans and jurisdictions can look to our sponsors as among the most practical and prudent in adopting changes to sustain the plan's strength in the face of a number of challenges," Mr. Mock said.
If full inflation protection was restored and contributions were reduced to the 12% base level, the plan would be 91% funded.
"A preliminary surplus is good news, however our plan continues to face demographic challenges as well as market uncertainty," said Mr. Mock. "That's why representatives of the OTF, the government and Teachers' management are working together to ensure the plan's sustainability."
As a group, teachers live longer than the general population, with the result that our average member is retired for five years longer than he or she contributed to the plan. The plan has 2,900 pensioners 90 or older, including 126 who are 100 or more.
"There is no question that an evolved defined benefit pension is the best and least expensive model for retirement security – it pools funding, longevity and asset-mix risk," Mr. Mock said.
2013 investment return highlights by asset class
The value of the plan's equity investments (both public and private) totaled $61.9 billion at year end, up from $59.5 billion at December 31, 2012. Much of the plan's growth in 2013 was delivered by the equities portfolio, with a one-year return of 27.6%, exceeding the benchmark return of 26.3% and creating value added of $0.6 billion.
Teachers' Private Capital (TPC) investments increased to $14.8 billion at year end from $12.0 billion at December 31, 2012. This group posted a 26.9% return for the year, below the benchmark of 33.4%.
Fixed income had $56.9 billion of net assets at year end, compared to $60.0 billion at December 31, 2012. The one-year return of negative 7.9% was better than the benchmark return of negative 8.1%.
The natural resources group's investments totaled $10.8 billion at year end compared to $9.2 billion at December 31, 2012. The investment return was 4.2%, which matched the benchmark.
Real assets, which comprise real estate and infrastructure, had total assets of $30.9 billion at year end, up from $26.5 billion at December 31, 2012.The real estate portfolio, managed by the plan's wholly owned subsidiary Cadillac Fairview, totaled $19.2 billion at year end and returned 13.2% compared to a benchmark return of 12.1% for the year ended December 31, 2013, for $0.3 billion in value added. The infrastructure portfolio totaled $11.7 billion at year end compared to $9.6 billion at December 31, 2012. Infrastructure assets returned 16.8% compared to a benchmark return of 10.9%, resulting in $0.6 billion in value added.
Rates of Return Compared to Benchmark chart
With $140.8 billion in net assets as of December 31, 2013, the Ontario Teachers' Pension Plan is the largest single-profession pension plan in Canada. An independent organization, it invests the pension fund's assets and administers the pensions of 307,000 active and retired teachers in Ontario. For more information, including our annual reports from 2013 and previous years, visit www.otpp.com. Follow us on Twitter @OtppInfo