The Demographic Balancing Act
September 01, 2015
We have a promise to keep. We'll provide you (and then your survivor) with a secure pension for your lifetime. But, as the ratio of working members to retired members closes in, and life spans increase, keeping this promise becomes more and more of a balancing act.
To keep our promise, we need to be able to predict and understand the factors that determine how long each member will collect a pension.
Our actuaries use a set of complex systems and processes, including ‘models', which enable us to predict the future lives of each of our 311,000 members. Many assumptions are used in these processes, including expected salary increases, expected retirement dates, likelihood of becoming ill, and very importantly, how long individuals will live.
All of this helps to paint a picture of when members will start to collect a pension and for how long.
We're always striving to ensure our assumptions are as close to reality as possible, to give us a razor sharp view of our future obligations. When we see differences between what we expected to happen and what actually happened, we update our assumptions.
With this in mind, we recently adopted a new approach to predicting improvements to people's lives that will affect how long they live. This means that instead of assuming that someone who is 60 years old will likely live for a specific number of years, we look at when they turned 60. With medical advances, someone turning 60 today can likely expect to live longer than someone who was turning this age 30 years ago. This analysis is consistent with ongoing efforts by the actuarial profession in Canada, the US and the UK.
The result of this new approach has had a significant impact on the future cost of pensions and in 2015, our liabilities increased by $1.3 billion from what they were in 2014.
Maintaining a clear picture of the future is a critical aspect of what your pension plan needs to do in order keep the pension promise. The processes we follow to update our assumptions and predict costs help us adapt and make the right decisions as an organization, in order to maintain a healthy, stable and strong plan for years to come.
In Part Two of this series we'll explore how we use conditional inflation protection to help maintain the plan's sustainability.