Your Pension in 2016

In 2016, the plan successfully navigated challenging markets and limited investment opportunities to increase net assets to $175.6 billion; produce a fourth consecutive preliminary funding surplus of $11.5 billion at January 1, 2017; and deliver service that members rated 9.1/10.

Diversification and our comprehensive new OneTeachers’ investment strategy served us well in 2016 as unexpected political events including Brexit and the election of a new U.S. administration fuelled global uncertainty. Exchange rates fluctuated as many countries experienced growing skepticism about globalization, and we expect this volatility to continue. Competition for assets also continues to increase.

To meet these challenges and keep contribution rates and benefit levels stable for members, we must make prudent investment and risk management decisions. To aid in this, we made meaningful progress implementing our OneTeachers’ strategy, which integrates our well-proven top-down risk management and asset allocation processes with our strong bottom-up approach to asset selection. We also established a new Operational Risk Committee to assist in the oversight of IT, enterprise project management, operations and security.

Through it all, outstanding service to members remains central to the plan’s mission. Member Services earned consistently high ratings in member surveys, distinguishing the plan as one of the top two for service in its peer group and internationally.

In addition to this Report to Members, we are also pleased to share with you our inaugural responsible investing report, as part of our commitment to keeping you informed.

$175.6 billion Net assets
$11.5 billion Preliminary funding surplus
105% Funded
9.1/10 Service rating
Investments

Q: How Did Investments do in 2016?

In a challenging global economy which included market volatility and limited investment opportunities, our total-fund rate of return was 4.2%.

We invest in 37 currencies and in more than 50 countries around the world. We report our results in Canadian dollars to match our liabilities, and large movements in currencies can have a positive or negative near-term impact on the reported value of our global investments. Asset returns in local currency were 7.2%. This is in line with our four-year asset returns. In Canadian dollars, however, currency had a -2.8% impact, for a loss of $4.5 billion. This illustrates the swings that currency can create year over year. In 2015, for example, currency impact added 8.3% to our total-fund return.

Our diverse portfolio is structured to generate long-term returns, and to absorb bumps along the way.

Tap “learn more” to read about:

  • Global strategic relationships
  • Responsible investing

Approximately 80% of the plan’s investment portfolio is managed in-house by highly skilled, specialized teams. We also rely on like-minded strategic partners around the world for investment and co-investment ideas and opportunities. These global relationships directly support our active management program and are a key component of our success. Our investment professionals are based in Toronto, London and Hong Kong, sourcing and managing investments in the Americas, Europe, and the Asia-Pacific region.

Responsible investing is central to informed decision making and risk mitigation in the effective long-term stewardship of our assets. Our practices are evolving, and the ways in which we consider environmental, social and governance (ESG) factors in our investment process are increasingly important. Our new responsible investing report provides information on the plan’s responsible investing framework, focus areas in 2016, and activities including proxy voting and engagement on ESG issues with companies and policy-makers.

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$1.3 billion Earned above benchmark
$175.6 billion Net assets (up from $171.4 billion in 2015)
4.2% Total-fund rate of return
Plan Funding

Q: How are you keeping my plan strong?

Teachers in Ontario live longer than the general Canadian population, and their life expectancy continues to increase. It costs more to pay lifetime pensions when members live longer. Members are contributing to the plan for fewer years than in the 1990s, and their retirement periods are longer. We assess the health of the plan every year through a funding valuation to determine whether the plan’s projected assets are reasonably sufficient to pay all promised pensions in the future. A preliminary valuation shows the plan is 105% funded as of January 1, 2017, which translates into an $11.5 billion surplus.

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  • Historically low interest rates increase pension liabilities
  • Inflation protection used to spread risk across generations

Subdued economic growth and low inflation have kept interest rates at historically low levels. When interest rates are low, pension liabilities rise as more money must be set aside to earn enough to pay future pensions. The plan’s sustainability is defined as its ability to meet the needs of the present without compromising the ability of future generations to meet their own needs. Intergenerational equity is the principle that members of each generation contribute the right amount to pay for the benefits they receive. It is an important aspect of sustainability.

Conditional inflation protection (CIP) helps reduce funding risk while also promoting intergenerational equity. CIP provides flexibility in the amount of inflation protection provided to pensioners for benefits earned after 2009. Over time, the risk of significant investment losses or a funding shortfall is distributed more broadly among the membership – risk is shared by more retired members. CIP will become more powerful over time: the amount of service that members have earned after 2009 continues to grow, while the proportion of service earned before 2010 (which is fully indexed to inflation) declines. Eventually, all pension benefits will be subject to CIP and all active and retired plan members will more equitably share the risk of a loss.

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1.3 : 1 Ratio of working-to-retired members
26 vs. 31 Average number of years contributed to plan vs. expected years on pension
Member Services

Q: How is the Plan adapting its service?

We want to be where you are. You’re leading increasingly digital lives, both in the classroom and in retirement, which is why we continue investing in our digital strategy. Last year, members signed in to our redesigned, mobile-first website more than 360,000 times. Facebook page views increased by 9%, which is why, in 2016, we began answering your questions online via Facebook Live. We launched myOTPP101, our new educational program headquartered on Pinterest, so you can learn more about your pension anytime, anywhere.

Tap “learn more” to read about:

  • Our member service rating of 9.1/10
  • $5.7 billion in pension and benefit payments

We’re making investments in systems and service channels to meet operational, regulatory and service requirements, and replacing outdated administrative systems. The cost of administering one of Canada’s largest payrolls has increased in recent years. The cost per member was $169 in 2016, versus $162 in 2015.

Our research tells us that keeping things simple is one of the reasons you scored your satisfaction with us at 9.1/10. We streamlined your Statement of Pension Benefits down to four pages from eight. We also amended plan terms so that you won’t have to take a medical to increase your survivor option to more than 60% before retirement.

We paid $5.7 billion in pension and benefit payments to pensioners ranging in age from 7–109. The average age of an Ontario teacher is 43, and the average retirement age of our plan members is 59. Delivering world-class pension service and retirement security to such a diverse membership is a privilege and a challenge. We will continue meeting this challenge by seeking innovative ways to deliver service that’s simple, personal and insightful.

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137% Documents uploaded online
49% Members sharing our YouTube videos