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Mortality Projections of Public Pension Plans in Canada and its

financial implications Jean-Claude Ménard, Chief Actuary

Office of the Chief Actuary

Office of the Superintendent of Financial Institutions Canada

10 January 2014, Orlando, United States



Presentation Outline

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• Historical trends in Canadian mortality • Mortality by population characteristics

• Mortality Projections Results • Uncertainty of Results • Can We Live Beyond 100 Years?



Life Expectancy at Birth (Calendar)

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Source : Canadian human Mortality Database, University of Montreal

0

2

4

6

8

10

12

14

45

50

55

60

65

70

75

80

85

1901 1911 1921 1931 1941 1951 1961 1971 1981 1991 2001 2006 2009

DifferenceMalesFemales

Life Expectancy Difference



Contribution to increase in life expectancy at birth has gradually shifted to people over age 65

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Males Females

Change attributable to (in years) 1929-1969 1969-1989 1989-2009 1929-1969 1969-1989 1989-2009

Infant mortality (<1) 6.0 1.0 0.2 4.8 0.8 0.1 Child mortality (1-14) 2.9 0.4 0.1 2.9 0.3 0.1 Young adult mortality

(15-44) 2.3 0.7 0.7 4.0 0.5 0.2

Older adult mortality (45-64) 0.5 1.5 1.4 2.2 0.9 0.6

Elderly mortality (65+) 0.8 1.3 3.0 3.2 2.0 2.0

Estimated Multivariate Effect -0.2 -0.1 -0.3 -0.4 -0.2 -0.1

Total Change in Life Expectancy 12.4 4.7 5.1 16.7 4.4 3.0

Source: Canadian human Mortality Database, University of Montreal and Office of the Chief Actuary calculations.



Improvements in mortality related to heart diseases have been significant over the last 15 years

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Source: Data from Statistics Canada, Health Division and OCA Calculations Standardized Using 2001 Canadian Population



Life Expectancy at Age 65 (Calendar)

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Source : Canadian human Mortality Database, University of Montreal

0

2

4

6

8

10

12

14

10

12

14

16

18

20

22

24

1901 1911 1921 1931 1941 1951 1961 1971 1981 1991 2001 2006 2009

DifferenceMalesFemales

Life Expectancy Difference



Life expectancy is impacted by marital status and level of income

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Married

Single GIS recipient

Without GIS

BENCHMARKOAS Program

Life Expectancy

Source: Office of the Chief Actuary, Actuarial Study No. 11: Old Age Security Program Mortality Experience, July 2012

Difference of life expectancy at age 65 (2007)



Survivor beneficiaries mortality is significantly higher than that of general population

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0.90

1.00

1.10

1.20

1.30

1.40

1.50

35 40 45 50 55 60 65 70 75 80 85 90 95 100 105 110

Males

Females

Mortality Ratios CPP Survivor Mortality Ratios Relative to General Population (2009)



Mortality of Disability Beneficiaries is 5 to 6 times higher than the general population’s mortality (Ages 55 to 59)

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Source: Office of the Chief Actuary, Actuarial Study No. 9: CPP Experience Study of Disability Beneficiaries, September 2011



Heat map of historical and projected mortality improvement rates for males

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Deterioration due to Accidents

Deterioration due to AIDS

Cohort Effect



Heat map of historical and projected mortality improvement rates for females

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Significant Improvements

in mothers’ health



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Canadian mortality rates at ages 15 to 54 are significantly lower than US rates

Ages 15-54



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Mortality Rates for older age groups have decreased over the last 80 years, more so over the last 40 years for males

Ages 55-64



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For ages 65 to 74, 7 deaths per 1,000 are from cancer, while only 3 deaths per 1,000 are from heart diseases

Ages 65-74



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Male mortality rates for ages 75 to 84 for Canada are projected to become lower than US female mortality rates

Ages 75-84



Elderly Mortality Rates have decreased over the last 80 years, more so over the last 10 years

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Ages 85-89



For ages over 90, heart diseases remain the main cause of deaths

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Ages 90+



Cohort Life Expectancy at Age 65

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Source: Canadian Human Mortality Database, Dept. of Demography of University of Montreal, and Office of the Chief Actuary, 26th CPP Actuarial Report



By 2030, Canada is projected to be behind UK and Switzerland for males

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Source: 17th International Conference of Social Security Actuaries and Statisticians and Dept. of Population, Japan



Japanese, British, Swiss, French and Finnish women are all projected to live longer than Canadian women by 2030

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Source: 17th International Conference of Social Security Actuaries and Statisticians and Dept. of Population, Japan



Uncertainty of Results Life Expectancies at age 65 if MIRs by cause are sustained

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CPP26 Projections

Annual Improvement Rates 2010+ Males Females

Diseases of the heart 4.6% 4.1%

Malignant Neoplasms 1.3% 0.2%

Other Causes 1.7% 0.7%



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Uncertainty of Results: Life Expectancies at 65 if heart diseases and cancer gradually removed over 75 years

Annual Improvement Rates for other causes Males Females

2010 1.7% 0.7%

2030 + 0.35% 0.35%

CPP26 Projections



Uncertainty of results: mixed stochastic/deterministic approach produces wide range of life expectancies

Mortality Improvement rates

Cohort Life Expectancy in 2050 Stochastic

10th Percentile Deterministic

Expected Stochastic

90th Percentile

Best Estimate Males 21.0 23.0 24.9

Females 23.4 25.3 27.1

Reducing Alternative (-0.2%/year)

Males 20.7 22.5 24.4

Females 22.9 24.8 26.7

Increasing Alternative (+0.2%/year)

Males 21.8 23.6 25.6

Females 24.0 25.9 27.7

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Low cost: 10th percentile of stochastic simulation centered over mortality rates under lower MIRs High cost: 90th percentile of stochastic simulation centered over mortality rates under higher MIRs

Minimum Contribution Rate Low-Cost 9.46% Best-Estimate 9.84% High-Cost 10.22%



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Source: 2012 OASDI Trustees Report, UK Office for National Statistics, 26th CPP Actuarial Report

Can We Live Beyond 100 Years? Probability of living to 100 for Canada, the U.S. and the U.K.



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Survival Curves for a Life Expectancy of 100 (Males)

e0 = 80 e0 = 100



To live beyond 100…

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• If mortality rates decrease at the same pace as observed over the past 15 years (2.5%/year males, 1.5%/year females), a life expectancy of 100 could be attained in 85 years (2094) for males and in 112 years (2121) for females.

• A reduction of mortality rates at each age by 87% for males and 82% for females results in a life expectancy of 100.

• Using the “age mapping” (a mathematical technique), life

expectancy of 100 is also achievable if the maximum life span increases to 140 years for males and 132 years for females



Conclusions

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• Retirement is expensive and will become even more expensive in the future with improved longevity

• Projected mortality rates after 2030 are highly uncertain, especially for people older than age 90

• It is a professional duty of the actuary to examine all available information in order to develop best-estimate mortality assumptions.



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Appendix

Mortality Projections of Public Pension Plans in Canada and its

financial implications

10 January 2014, Orlando, United States



Cancer is the most common cause of death amongst disability beneficiaries

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0

50

100

150

200

250

300

0

50

100

150

200

250

300

45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64

Deaths per thousand Deaths per thousand

Age

Neoplasm (Males)Other than neoplasm (Males)

Source: Office of the Chief Actuary, Actuarial Study No. 9: CPP Experience Study of Disability Beneficiaries, September 2011



The marital status tends to impact men more than women. The difference in life expectancy is 3.3 years for men and 1.7 for women

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Source : Office of the Chief Actuary, Actuarial Study No. 11: Old Age Security Program Mortality Experience, July 2012



A high level of income is a predictor of lower mortality The difference in life expectancy is 2.4 years for men and 2.1 for women

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OAS Beneficiaries by Level of Retirement Income to All OAS Beneficiaries (2007)

Source: Office of the Chief Actuary, Actuarial Study No. 11: Old Age Security Program Mortality Experience, July 2012



Canadian historical annual mortality improvement rates are used as a starting point of projections

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Source: Estimated by OCA based on data from Canadian Human Mortality Database, Dept. of Demography of University of Montreal

MALES FEMALES



CPP26 Annual Mortality Improvement Rates (%)

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Age 2010 2011-2029 2030+ 15-54 2.4 1.5 0.8 55-64 2.3 1.5 0.8 65-74 3.0 1.8 0.8 75-84 2.6 1.7 0.8 85-89 2.0 1.3 0.6 90-94 1.3 0.8 0.4 95+ 0.4 0.3 0.3

Males

Age 2010 2011-2029 2030+ 15-54 1.3 1.0 0.8 55-64 1.7 1.2 0.8 65-74 1.8 1.3 0.8 75-84 1.7 1.3 0.8 85-89 1.5 1.1 0.6 90-94 1.2 0.8 0.4 95+ 0.4 0.3 0.3

Females

• 2010 MIRs are set equal to the average annual rates of mortality improvement over the last known 15 years 1994-2009, by age and sex

• Ultimate improvement rates are set to about ½ of females last 15 years experience

• MIRs for the intermediate period (2011-2029) are derived from interpolating the MIRs between 2010 and 2030 using cubic functions.



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Infant Mortality Rates have decreased significantly over the last 80 years, less so over the last 20 years

Age less than 1



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For ages 1 to 14, main causes of death are accidents, followed by cancer

Ages 1-14



Compression of Survival Curve

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Males Females

Birth Year

Bottom 15th percentile

15th to 85th Percentile

Top 15th Percentile

Bottom 15th percentile

15th to 85th Percentile

Top 15th Percentile

1925 (0-11) (12-83) (84+) (0-23) (24-84) (85+)

1950 (0-49) (50-84) (85+) (0-55) (56-87) (88+)

1975 (0-55) (56-85) (86+) (0-64) (65-91) (92+)

2010 (0-66) (67-92) (93+) (0-71) (72-95) (96+)

2013 (0-67) (68-92) (93+) (0-72) (73-95) (96+)

2025 (0-69) (70-94) (95+) (0-74) (75-96) (97+)

2050 (0-71) (72-95) (96+) (0-76) (77-98) (99+)

2075 (0-74) (75-97) (98+) (0-78) (79-99) (100+)

Evolution of Distribution of Age at Death

Probabilities are based on the mortality rates of the calendar year of birth.



Survival Curves for a Life Expectancy of 100 (Females)

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e0 = 84 e0 = 100



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Thank you

Mortality Projections of Public Pension Plans in Canada and its financial

implications

Jean-Claude Ménard, Chief Actuary Office of the Chief Actuary

Office of the Superintendent of Financial Institutions Canada

Steve Brandon

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