9th actuarial report on the old age security program

It is estimated that 6. Of this group, , or 2. In , those affected by the Recovery Tax are projected to represent 6. This increase is however mitigated by the legislated increase in the age of eligibility from 65 to 67 over that period. After , due to the relative stability in the growth of the population aged 67 and over and in the basic pension recipient rates, the number of beneficiaries is expected to continue to increase but at a slower pace until the end of the projection period.

Over that period, the increase in the number of basic pension and GIS beneficiaries is mainly a result of the aging of the population and the retirement of the baby boomers.

Over the projection period, this combined effect would have the overall effect of reducing the number of individuals who might have otherwise been eligible for the GIS or Allowance benefits. However, the impact of TFSAs is expected to offset this decline in eligibility. The expected decrease in the number of Allowance beneficiaries due to the difference between inflation and wage growth prior to retirement is assumed to outweigh any increase in beneficiaries due to growth in the age group 60 to 64 transitioning to 62 to 66 by , to which the Allowance applies and the effect of TFSAs.

After , the Allowance recipient rates continue to decrease while the growth in the population aged 62 to 66 stabilizes. The recipient rates shown in Table 6 reflect the increase in the eligible ages for Program benefits scheduled to occur over the period April to January The current eligible ages are 65 for the OAS basic pension and GIS, and 60 to 64 for the Allowance benefit, which are reflected in the recipient rates for years prior to From onward, the recipient rates reflect the increase in the eligible ages to 67 for the basic pension and GIS and between 62 to 66 for the Allowance.

The OAS recipient rates also account for voluntary deferrals, effective 1 July The historical and projected expenditures and average annual benefits by type are presented in Tables 7 and 8. It is estimated that in , approximately 6. The existence of partial pensions introduced in for those with less than 40 years of residence is assumed to put downward pressure on the average annual OAS pension. The projected expenditures and average benefits shown in Table 8 reflect the increase in the eligible ages for Program benefits scheduled to occur over the period April to January The OAS basic pension expenditures and average benefits also account for voluntary deferrals, effective 1 July The distribution of the number of GIS beneficiaries by type and level of benefit is assumed to shift to lower benefit categories over the projection period due to the impact of TFSAs.

The distribution of the number of Allowance beneficiaries by type and level of benefit is assumed to stay relatively stable over the projection period due to the impact of TFSAs. For each benefit, total expenditures are the product of the number of beneficiaries and respective average benefit by age, sex, and type and level of benefit. Since the Program is financed from general revenues on a pay-as-you-go basis, it is useful to express its annual expenditures in relative terms rather than in absolute dollar terms.

For this reason, the expenditures are presented as cost ratios using three different measurement bases. The details regarding how these measurement bases are projected are provided in Appendix B of this report.

The GDP basis is derived from projected total employment earnings using the historical relationship between the two. Tables 9 and 10 present the historical and projected annual expenditures as a percentage of GDP. This measurement basis facilitates a direct comparison of the cost of the Program with the costs of the CPP and QPP by using the same contributory basis.

Tables 13 and 14 present the historical and projected annual expenditures as a percentage of total employment earnings. The projected expenditures shown in Tables 10, 12, and 14 reflect the increase in the eligible ages for Program benefits scheduled to occur over the period April to January The OAS basic pension expenditures also account for voluntary deferrals, effective 1 July The results presented in this report differ from those presented in the previous triennial 9 th OAS Program Actuarial Report for a variety of reasons.

Differences between the actual experience from through and that projected in the 9 th OAS Program Actuarial Report are addressed in subsection B below. Since historical results provide the starting point for the projections shown in this report, these historical differences between actual and projected experience have an effect on the projections. Detailed reconciliations of the projected expenditures are presented in Appendix C. The components of change in the Program expenditures from 31 December to 31 December are summarized in Table For the most part, this is because a slightly lower number of OAS beneficiaries was more than offset by a higher average benefit than projected.

Total GDP over the period was 5. As a result, overall expenditures relative to the GDP were about 5. Table 16 presents the main elements of changes in the expenditures expressed as a percentage of the Gross Domestic Product since the 9th OAS Program Actuarial Report, including the changes that have arisen over the period to from amendments to the Program, as reflected in the 10 th and 11 th Actuarial Reports.

Although assumed continuing increases in longevity lead to increases in the cost ratio, this effect is countered by assumed increases in net migration, leading to no effect on the projected cost ratios from the demographic assumptions. Although the anticipated effect of TFSAs and changes in economic assumptions act to increase the cost ratios, these effects are more than offset by other factors, including the experience of the last three years and recent legislated amendments to the Program.

To measure the sensitivity of the long-term projected financial status of the Program to changes in the future demographic and economic outlook, a number of sensitivity tests were performed. These tests focussed on varying the key best-estimate assumptions individually in order to measure the potential impact on the cost ratio of Program expenditures to GDP. The projected financial status of the OAS Program presented in this report is based on the assumed demographic and economic outlook over the long term.

For this purpose, as required by the Public Pensions Reporting Act , the next such review will be as at 31 December In our opinion, considering that this 12 th Actuarial Report was prepared pursuant to the Public Pensions Reporting Act :. Michel Montambeault, F.

Senior Actuary. Chief Actuary. Benefits provided under the Old Age Security Act include the basic pension, the Guaranteed Income Supplement, and the Allowance, which started being paid in , , and , respectively. The Allowance for the survivor benefit started in Under that Act, there is a scheduled increase in the age of eligibility for OAS Program benefits commencing in April and voluntary deferral of the OAS pension by up to five years with actuarial adjustment, starting 1 July The legislation shall prevail if there is a discrepancy between it and this summary.

All benefits provided under the Old Age Security Act are currently financed from federal general tax revenues. The OAS basic pension is a monthly benefit available, on application, to anyone age 65 or over who meets the residence and legal status requirements specified in the Old Age Security Act.

A minimum of 10 years of residence in Canada after reaching age 18 is required to receive an OAS basic pension in Canada. To receive the OAS pension outside the country, a person must have lived in Canada for a minimum of 20 years after reaching age As of 1 January , the OAS basic pension is not payable to any individual incarcerated in an institution in accordance with the provisions of the Eliminating Entitlements for Prisoners Act.

Commencing 1 April , the ages of eligibility for the OAS basic pension and GIS benefit will both gradually increase from 65 to 67, with full implementation by January The following table presents the scheduled increase in the age of eligibility for the basic pension and GIS.

In such cases, the individual must have lived in Canada for the 10 years immediately prior to the approval of the application for the pension. Absences during this year period may be offset if, after reaching age 18, the applicant was present in Canada before those 10 years for a total period that was at least three times the length of absence.

In this instance, however, the applicant must also have lived in Canada for at least one year immediately prior to the date of the approval of the application. For example, an absence of two years between the ages of 60 and 62 could be offset by six years of presence in Canada after age 18 and before reaching age Effective 1 July , individuals may opt to defer receiving the OAS basic pension by up to five years after the eligible age in exchange for a higher pension.

The deferred pensions are actuarially adjusted upward by 0. The upward adjustment to the pension is permanent. The OAS basic pension is subject to income tax.

OAS Recovery Tax deductions are withheld at source. For every dollar of income above this limit, the amount of basic pension is reduced by 15 cents. The GIS is a monthly benefit paid to residents of Canada who receive an OAS basic pension either the full amount or a partial amount and who have little or no other income. Payment of the GIS may begin in the same month as payment of the basic pension. The amount of the benefit varies according to income see below. Since , most of those receiving the GIS can continue to do so by filing their income tax returns, rather than making a new application each year.

The GIS is not payable outside Canada beyond a period of six months following the month of departure from Canada, regardless of how long the person previously lived in Canada. Starting 1 July , income as defined for purposes of the GIS and Allowance benefits under the Old Age Security Act received in the previous year is used to calculate the amount of benefits paid during the period starting on 1 July of a calendar year and ending on 30 June of the following calendar year. Commencing 1 April , the age of eligibility for the GIS will gradually increase from 65 to 67, with full implementation by January The scheduled increase in the eligible age is the same as that for the OAS basic pension, as shown in Table In general, income as defined under the Income Tax Act is included subject to certain deductions.

The resulting estimated income of an individual or, the combined income of the individual and his or her spouse or common-law partner cannot exceed certain limits as will be described later. Persons admitted to Canada as sponsored immigrants after 6 March and persons qualifying for benefits from onward are not eligible, generally speaking, to receive the GIS for the duration of a sponsorship, up to a maximum of ten years.

A spouse or common-law partner who becomes involuntarily separated due to, for example, incarceration or institutionalization of his or her spouse or partner, is considered to be single in regard to applying for the GIS benefit. The amount of the GIS to which a person is entitled depends on his or her length of residence in Canada, marital status, and income. To be entitled to a full benefit, persons admitted to Canada after 6 March and persons qualifying for benefits from onward must have resided in Canada for at least 10 years after reaching age If a person to whom either of these conditions applies has less than 10 years of residence, a partial benefit is payable provided, as noted in the previous section, that the person is not a sponsored immigrant who is still in the period of sponsorship.

The proportion payable is recalculated each year, taking into account additional residence in Canada during the previous year, building gradually to a full benefit after 10 years. There are two rates of payment for a GIS benefit. The single rate applies to single individuals — including widowed, divorced or separated persons as well as individuals who have never married and to persons for whom their spouses or common-law partners do not receive either the OAS pension or the Allowance.

The single rate also applies to spouses or common-law partners who become involuntarily separated from their spouses or partners as mentioned above. The single rate is higher than the married rate, reflecting the higher cost of living alone. However, each member of a married or common-law couple is entitled to his or her own benefit, so the combined benefits for a couple are higher than those for a single person.

Effective 1 July , top-up benefits are payable to GIS recipients who receive benefits at the single rate, as described above, and to couples that include a GIS recipient and either an OAS pensioner or Allowance recipient. A special provision applies to persons who receive a partial OAS pension. In this case, the supplement is increased by the difference between the maximum OAS pension and the partial OAS pension in order to provide the same combined monthly pension and supplement to beneficiaries with the same level of income.

The additional amount may result in the supplement exceeding the maximum GIS payable. For a single, widowed, divorced or separated person, the maximum monthly GIS benefit is reduced by 50 cents for every dollar of monthly income i. This reduction is in addition to any reduction to the top-up. If both spouses or common-law partners are receiving the basic OAS pension, the maximum monthly GIS of each person is reduced by 25 cents for every dollar of other combined monthly income i.

A special provision applies in the case of a couple in which only one spouse or common-law partner is a pensioner and the other is not eligible for either the OAS pension or the Allowance. In this instance, the pensioner can receive the GIS at the higher rate paid to those who are single. This reduction is in addition to any reduction applied to the top-up benefit. This reduction is in addition to any reduction applied to the top-up. No actuarial adjustment is applied to GIS benefits payable to OAS pensioners who defer receiving their basic pensions in exchange for actuarially-adjusted higher pensions.

The Allowance monthly benefit is designed to recognize the difficult circumstances faced by couples living on the pension of only one spouse as well as by many widowed persons. Since , most of those receiving the Allowance can continue to do so by filing their income tax returns, rather than making a new application each year.

Starting 1 July , income as defined for purposes of the GIS and the Allowance benefits under the Old Age Security Act received in the previous calendar year is used to calculate the amount of benefits paid during the period starting on 1 July of a calendar year and ending on 30 June of the following calendar year.

Like the GIS, Allowance benefits are not subject to income tax. In addition, also like the GIS benefit, Allowance benefits are not payable outside Canada beyond a period of six months following the month of departure from Canada, regardless of how long the person previously lived in Canada.

The Allowance may be paid to the spouse or common-law partner of a senior receiving OAS and GIS benefits, or to a survivor, who, in each case, is between the ages of 60 and 64 and who has lived in Canada for at least 10 years after reaching age An applicant must also be a Canadian citizen or a legal resident of Canada on the day preceding the approval of the application.

The same income exclusions and deductions that apply to the GIS also apply to the Allowance benefit. The Allowance stops being paid when the person becomes eligible for a basic pension at age 65, leaves Canada for more than six months, or dies. For a couple, the Allowance stops being paid if the older spouse or common-law partner ceases to be eligible for the GIS, or if the spouses separate, divorce, or dissolve their common-law partnership.

In addition, in the case of survivors, the Allowance ceases if the person remarries. Sponsored immigrants are subject to the same conditions regarding eligibility as are described in the preceding section concerning the GIS. Allowance benefits to spouses or common-law partners of incarcerated individuals remain payable.

Commencing 1 April , the age of eligibility for the Allowance benefit regular and survivor will gradually increase from 60 to 62, with full implementation by January The scheduled increase in the eligible age for the Allowance benefit will occur in line with the eligible age increases for the OAS basic pension and GIS.

Table 19 presents the scheduled increase in the age of eligibility for the Allowance benefit. In addition, to be entitled to the full Allowance, persons admitted to Canada after 6 March and persons qualifying for benefits from onward must have resided in Canada for at least 10 years after reaching age The proportion payable is recalculated each year, taking into account additional residence in Canada during the previous year, building gradually to a full Allowance after 10 years.

Effective 1 July , top-up benefits are payable to Allowance recipients for both the regular benefit i. Allowance spouses and common-law partners of GIS recipients and the survivor benefit. The maximum amount payable to the spouse of a pensioner under the regular Allowance benefit is equal to the combination of a full OAS pension and the maximum GIS at the married rate.

Since July , the maximum amount payable under the survivor Allowance benefit is higher than under the regular Allowance benefit, recognizing the higher cost of living alone. Up to this level of income the GIS portion remains payable at the maximum. The reductions to the Allowance benefits are in addition to any applied to the top-ups. All Allowance benefits including top-ups are adjusted quarterly in line with changes in the CPI, as described in section VI.

No actuarial adjustment is applied to Allowance benefits payable to spouses or common-law partners of OAS pensioners who defer receiving their basic pensions in exchange for actuarially-adjusted higher pensions. All benefit amounts under the Old Age Security Act are adjusted at the beginning of each calendar quarter in line with changes in the CPI. However, if the CPI decreases, benefit amounts do not decrease, but are held constant until the CPI exceeds its previous peak.

This section describes the assumptions and methods that underlie the financial projections in the Results section of this report. Future expenditures and cost ratios are projected over a long period of time, i. These assumptions form the basis for the projections of future expenditures of the Program and cost measurement bases. Although the demographic and economic assumptions have been developed using the available information, the resulting estimates should be interpreted with caution.

These estimates are not intended to be predictions, but rather projections of the future financial status of the Program. To the extent applicable, these assumptions are consistent with the best-estimate assumptions used in the 26 th Actuarial Report on the Canada Pension Plan as at 31 December Both the historical and projected populations of Canada are required for the calculation of future benefits.

The population of Canada as at 1 July is used as a starting point. The population is then projected by age and sex from one year to the next by adding births and net migrants and subtracting deaths. Applying the fertility, migration, and mortality assumptions to the starting population develops the annual numbers of births, net migrants, and deaths. The starting point for the demographic projections is based on the most recent Statistics Canada population estimates as at 1 July for Canada, by age and sex.

The estimates are based on the Census. The estimates are adjusted by ungrouping ages and older into individual ages using the observed distribution of OAS Program beneficiaries by age for ages and older. The fertility rate for a given age and year is the average number of live births per female of that age during that year.

The total fertility rate for a year is the average number of children that would be born to a woman in her lifetime if she experienced the age-specific fertility rates observed in, or assumed for, that year. The total fertility rate in Canada has declined significantly since the baby boom period, when the rate peaked at nearly 4. The baby bust period that followed in the mids pulled down the total fertility rate by the mids to a low of 1. Canada is one of many industrialized countries that have seen an increase in their total fertility rates since By , the total fertility rate for Canada reached 1.

In , the total fertility rate for Canada was 1. Fertility rates are affected by many factors, including social attitudes, reproductive technologies, and economic conditions. It is assumed for this report that the recent economic downturn has caused a temporary downward effect on total fertility rates, with couples choosing to postpone having any or more children until economic conditions improve.

This effect was taken into consideration along with historical trends in fertility rates by age group over the last 20 years. The short periods of growth in the fertility rates that have occurred in recent decades are assumed to be temporary in nature, rather than having any long-term effects.

In this report, it is thus assumed that the total fertility rate from onward for Canada will be 1. Finally, in accordance with the average experience over the last 10, 20, and 30 years, the assumed ratio of male to female newborns is 1. Table 20 shows the projected age-specific and total fertility rates by calendar year for Canada.

Cohort fertility rates provide a more reliable measure of the level of fertility, since they reflect the experience of real cohorts of women as opposed to the experience of synthetic cohorts, which is based on calendar years and used to derive the total fertility rates. Chart 3 shows the historical and projected total and cohort fertility rates for Canada. For , the annual rates of mortality improvement, varying by age and sex, were set equal to the average annual improvement rates experienced in Canada over the year period to The analysis of trends in Canadian mortality over the period to shows that Canadian males born between the mids and the late s experienced historically higher improvement rates at most ages compared to males born at earlier or later periods.

Mortality improvement rates for any given age, sex, and year may be regarded as a combination of age, year and cohort components or effects.

Improvement rates for years to were determined by cubical interpolation between:. It was then assumed that the cohort effect will impact improvement rates for males aged 60 to 74 in This effect is assumed to gradually disappear by For the year and thereafter for Canada, the ultimate annual rates of mortality improvement vary by age only and not by sex or calendar year.

The ultimate mortality improvement rates are derived by analyzing Canadian experience over the period to Male improvement rates at most ages are currently higher than female improvement rates but are assumed to decrease to the same level as female rates from onward.

The historical downward trend in mortality improvement rates is clear for both sexes in the age group For age groups 60 and older, recent experience has shown a stabilization of improvement rates for both sexes. The ultimate rate for both sexes for ages 0 to 84 is set at 0. The ultimate improvement rate is then set to reduce from 0.

The projected mortality rates in Table 23 indicate a continuous decrease in mortality rates over the long term. For example, the mortality rate at age 65 for males is expected to decrease from about 12 deaths per thousand people in to 8 deaths per thousand people by The gap in mortality rates between males and females at each age is also expected to decrease over the projection period.

Table 25 is similar to Table 24, the only difference being that it takes into account the assumed mortality improvements after the specified calendar years with future improvements. Given the continuing trend in increased longevity, Table 25 is considered to be more realistic than, especially for the older ages. At the same time, the extended length of the projection period increases the uncertainty of the results presented in Table 25 for younger ages. From to , Canadian life expectancy at age 65 with assumed future mortality improvements is projected to grow from The yearly increase in life expectancies at age 65 in the early years of the projection reflects the significant increase observed over the last decades.

Thereafter, there is a projected slowdown in the increase in life expectancies consistent with the lower rate of improvement in mortality assumed for and thereafter.

Immigration and emigration are generally recognized as being volatile parameters of future population growth since they are subject to a variety of demographic, economic, social and political factors. During the period from to , annual immigration to Canada varied from 84, to ,, annual emigration from Canada fluctuated between 40, and 84, and the annual numbers of returning Canadians fluctuated between 14, and 41, During the period from to , the annual net increase in the number of non-permanent residents fluctuated between , and , In previous OAS Program actuarial reports, the average annual net increase of non-permanent residents was assumed to be zero, because of the large historical variations both positive and negative in this migration component.

However, over the last 15 years, the number of non-permanent residents has constantly increased in Canada, and it is believed that non-permanent residents will continue filling the need for jobs in fields where it is difficult to recruit Canadian workers. It is expected that the annual net increase of non-permanent residents will remain at a positive but lower level in the future.

It is projected that the annual net increase of non-permanent residents will reduce from its current level of 55, to an ultimate level of about 3, per year by It is assumed that the net migration rate will reduce from its level of 0. The ultimate level of 0.

Chart 5 shows the net migration immigration less emigration, plus the number of returning Canadians, plus the net increase of non-permanent residents experience since and the assumed rate for the future. The distributions of immigrants, emigrants, returning Canadians, and non-permanent residents by age and sex used for the demographic projections were derived from Statistics Canada data averaged over the period to The evolution of the Canadian population age distribution since is shown in Chart 6.

One can easily observe that the triangular shape of the s has become more rectangular over time. This is projected to continue and indicates an aging population. The effects of the baby boom, baby bust, and echo generations can be seen. The chart also reveals that the number of people aged 85 and over is expected to increase dramatically over the next 40 years.

The population of Canada as at 1 July is Table 26 presents the projected population of Canada as at 1 July for selected age groups and years. Chart 7 shows the evolution of the total population of Canada and of those aged 20 to 64 from to Table 27 shows the variations in the relative proportions of various age groups for Canada throughout the projection period. The proportion of people aged 67 and over is expected to increase significantly from The number of people aged 67 and older as a proportion of the number of people aged 20 to 66 more than doubles over the same period, from Table 28 shows the components of population growth, which is defined by the projected number of births plus net migrants less the projected number of deaths from to , and Chart 8 presents these figures graphically for the same period.

Over the period to , the population of Canada is projected to grow at about 1. The annual growth slows to about 0. The population of Canada is expected to reach The list of assumptions required to project the various economic indices, benefit expenditures, and cost measurement bases is quite extensive. The following sections cover the more important assumptions. The economic outlook rests on the assumed evolution of the labour market, that is, labour force participation, employment, unemployment, inflation, and the increase in average employment earnings, as well as the increase in GDP.

All of these factors must be considered together and form part of an overall economic perspective. For this purpose, average employment earnings, the proportion of persons with earnings, and the proportion of CPP contributors are required and are assumed exactly as under the 26th CPP Actuarial Report. The future expenditures of the OAS Program and cost measurement bases depend on many demographic and economic factors.

It is important to define the individual economic assumptions in the context of a long-term overall economic perspective.

For this report, it is assumed that, despite the modest pace of recovery from the recent economic downturn and an uncertain short-term economic outlook for major foreign economies, a moderate and sustainable growth in the Canadian economy will persist throughout the projection period. The actuarial examination of the Program involves the projection of its expenditures as well as cost measurement bases over a long period of time.

Although best judgment is used regarding future economic trends, it is nonetheless difficult to anticipate all of the social and corresponding economic changes that may occur during the projection period. There will always be some degree of uncertainty. The projected aging of the population combined with the retirement of the baby boom generation over the next few decades will certainly create significant social and economic changes.

It is possible that the evolution of the working-age population, especially the active population, will be quite different from what has been historically observed and what has been assumed for the purpose of this report. The inflation rate assumption is needed to determine the Pension Index for any given calendar year. It is also used in the determination of the annual nominal increase in average employment earnings. Price increases, as measured by changes in the Consumer Price Index, tend to fluctuate from year to year.

Over the last 50 years, the trend was generally upward through the early s then downward until the introduction of the inflation-control targets in the early s, at which point inflation began to stabilize. For example, the average annual increases in the CPI for the 50, 20 and year periods ending in were 4. To reflect recent experience and the short-term expectation that inflation will remain subdued in the coming quarters, the price increase assumption was set at 1.

For to , it is assumed that the Bank of Canada will maintain its inflation target policy. An assumption of 2. Subsequently, the inflation rate is assumed to increase to 2. This is lower than the assumption of 2. The main reasons for the choice of an ultimate assumption of 2. Chart 9 shows the main components of the labour market that are used to determine the number of earners to calculate the total employment earnings shown in Table The number of earners is defined as the number of persons who had earnings during a given calendar year.

The proportion of earners assumption described in section F relies on the projected active population given in this report. The overall labour force participation rates in Canada the active population expressed as a proportion of the population aged 15 and over from to clearly show a narrowing of the gap between male and female rates.

Although the increase in participation rates of females aged 15 to 69 has slowed down since the mids, the increase has been significant over the past decades.

Furthermore, participation rates for those aged 55 and older have increased significantly over the last decade for both men and women. In addition, over the next two decades, it is assumed that the participation of males and females aged 55 and over will continue to increase.

Tables 29 to 31 provide projections of the active and employed populations and associated participation, employment, and unemployment rates for Canada. Given that participation rates start to decline mostly after age 50, the aging of the population will exert downward pressure on the overall labour force participation rate in Canada.

If current participation rates by age and sex were to apply throughout the projection period, the effect of population aging would cause the overall participation rate from Table 30 to fall from However, it is expected that a number of factors will contribute toward partially offsetting the decline that results from population aging.

The main assumption underlying the future overall participation rate is a significant increase in participation rates for those aged 55 and over as a result of an expected continued trend toward delayed retirement.

Government policies aimed at increasing participation rates of older workers, the ability to receive a CPP retirement pension prior to age 65 while remaining in the workforce since , the increase in life expectancy, and possible insufficient retirement savings are assumed to encourage older workers to delay their retirement and exit the labour force at a later age.

However, despite the assumed future increase in participation rates of older workers and a reliance on skilled immigrant workers, it is still expected that there will be moderate labour shortages in the future as the working-age population expands at a slower pace and as baby boomers retire and exit the labour force. The participation rates for all age groups are expected to increase due to the attractive employment opportunities resulting from labour shortages. All top-ups are effective 1 July and indexed thereafter in line with increases in the CPI.

The financial estimates presented in this report use the same actuarial assumptions and methods as per the 9th OAS Actuarial Report as at 31 December Based on data provided by Service Canada and the Canada Revenue Agency, the proportions of beneficiaries who would receive the top-up benefit and their average top-up as a percentage of the maximum top-up have been estimated. The estimated number of beneficiaries who would receive the top-up benefit is split into two groups: those receiving a partial top-up and those receiving a full top-up.

This process was done by type of GIS and Allowance recipients, age, and sex. The estimated proportions are assumed to apply for years and thereafter. Table 2 presents the financial status of the OAS Program as amended by Part 3 of Bill C-3, and Table 3 presents the impacts of the amendments on the financial status of the OAS Program the differences between the financial results presented in Tables 2 and 1. The Honourable Deb Schulte, P.

It presents the results of an actuarial review of the Old Age Security OAS program as at 31 December , and includes projections of future experience through the year The previous triennial report is the 14 th Actuarial Report on the Old Age Security program as at 31 December , which was tabled in the House of Commons on 16 August The next triennial report is scheduled as at 31 December This 16 th OAS Actuarial Report takes into account three subsequent events Footnote 1 , that is, events that became known to the Chief Actuary after the valuation date, but before the report date, that were deemed to have an effect on the actuarial review of the OAS program as at the valuation date.

They are:. This report has been prepared in compliance with the timing and information requirements of the Public Pensions Reporting Act , which provides that the Chief Actuary shall prepare a triennial actuarial report on the benefits under the various Parts of the Old Age Security Act , being as follows:.

Another important purpose of the report is to inform the general public of the current and projected costs of the OAS program. The report provides information to evaluate the program's financial situation over a long period, provided the program remains unchanged.

Such information should facilitate a better understanding of the program and the factors that influence its costs, and thus contribute to an informed public discussion of issues related to it. Section 2 presents a general overview of the methodology used in preparing the actuarial estimates included in this report, which are based on the best-estimate assumptions described in section 3. The results are presented in section 4 and include information on key demographic and financial indicators and on the projection of beneficiaries, expenditures, and cost ratios.

Section 5 presents the reconciliation of the results with those presented in the previous triennial 14 th report. Section 6 presents a general conclusion, and section 7 provides the actuarial opinion. The various appendices provide supplemental information on the uncertainty of results based on sensitivity analysis of the key best-estimate assumptions, the program provisions, detailed reconciliations of the results between the 14 th Actuarial Report on the OAS program and this report, a description of the data, assumptions and methodology used in this report, detailed projections of beneficiaries and expenditures, and lastly acknowledgements.

To measure the sensitivity of the long-term projections of the program to future changes in the demographic and economic environments, different sensitivity tests were performed. The tests and results are presented in detail in Appendix A of this report.

The tests focus on varying the key best-estimate assumptions individually in order to measure the potential impact on the cost ratio of program expenditures to GDP. For example, if life expectancies at age 65 were to increase by about two more years than the best estimates of this report, then the ratio in would increase from 2. As another example, if benefit rates were increased to partially reflect the growth in real wages, then the ratio in would increase from 2.

Scenario tests were also performed regarding the future economic growth and aging of the population, and how they may differ from the best-estimate projection. Two alternative economic scenarios were developed that portray higher and lower economic growth, and two demographically based scenarios were developed that portray generally younger and older populations. The economic scenarios produced cost ratios of program expenditures to GPD in of 1.

The ratio of program expenditures to the GDP is projected to be 2. The retirement of the baby boomers reaching age 65 over the next few decades is projected to increase the expenditures of the program and the ratio is projected to reach a high of 3. As a result, annual expenditures are expected to gradually fall to 2.

In comparison with the previous triennial 14 th Actuarial Report on the OAS program, the amendments which increase, effective 1 July , the GIS and Allowance income exemption, slightly increase the projected expenditures by 0.

Changes in the economic assumptions especially lower real wage growth also lead to increases in the cost ratio. These increases are offset by the update in experience and changes to demographic and benefit assumptions. The net result is lower expenditures relative to the GDP over the projection period as compared to the previous 14 th Actuarial Report on the OAS program. The actuarial examination of the OAS program involves projections of its expenditures and cost measurement bases over a long period of time, so that the future impact of historical and projected trends in demographic and economic factors can be properly assessed.

However, projected total employment earnings and GDP levels are used as bases for measuring the relative costs over the projection period. The costing begins with a projection of the general population of Canada.

This requires assumptions regarding demographic factors such as fertility, migration, and mortality.

Expenditures are made up of the benefits paid out and administrative expenses. Benefits are projected by applying assumptions regarding recipient rates for various types and levels of benefits to the projected population at the relevant ages, along with assumptions regarding increases in the maximum benefit rates.

Administrative expenses are projected by considering the historical relationship between expenses and total benefit expenditures. The total employment earnings cost measurement basis is derived by applying labour force participation and job creation rates to the projected population and by projecting future employment earnings.

This requires assumptions about various factors such as wage increases, an earnings distribution and unemployment rates. The assumptions and results presented in the following sections make it possible to measure the costs of the OAS program over the projection period.

A wide variety of factors influence both the current and projected costs of the program. Accordingly, the results shown in this report differ from those shown in previous reports. Likewise, future actuarial examinations will reveal results that differ from the projections included in this report. The information required by statute, which is presented in section 4 of this report, requires making several assumptions regarding future demographic and economic trends.

The projections included in this report cover a long period of time up to the year and the assumptions are determined by examining historical long-term and short-term trends, and by applying judgement as to the extent these trends will continue in the future.

These assumptions reflect the Chief Actuary's best judgment and are referred to in this report as the best-estimate assumptions. The assumptions were chosen to be, independently reasonable and appropriate in the aggregate, taking into account certain interrelationships between them.

To the extent applicable, and with the exception of certain adjustments resulting from the impacts of the COVID pandemic, the assumptions are consistent with the best-estimate assumptions used in the 30 th Actuarial Report on the Canada Pension Plan as at 31 December This actuarial report on the Old Age Security program presents projections of its expenditures over a long period of time.

Both the length of the projection period and the number of assumptions required ensure that actual future experience will not develop precisely in accordance with the best-estimate projections. To measure the sensitivity of the long-term projections to future changes in demographic and economic environments, a variety of sensitivity tests were performed.

The tests and results are presented in Appendix A of this report. The assumptions were developed taking into account three subsequent events Footnote 3 , that is, events that became known to the Chief Actuary after the valuation date, but before the report date, that were deemed to have an effect on the actuarial review of the OAS program as at the valuation date.

Table 1 presents a summary of the most important assumptions used in this report compared with those used in the previous 14 th triennial report. The assumptions are described in more detail in Appendix D of this report. The recipient rate for each OAS program benefit refers to the proportion of the Canadian population that has received, receives, or is projected to receive that benefit. The OAS basic pension recipient rates shown also account for voluntary deferrals, effective 1 July Return to Table 1 - Footnote 1.

The assumed labour force participation and employment rates of the 14 th Actuarial Report on the OAS for the age group These differ from the assumed rates for the age group shown in Table 1 of the 14 th Actuarial Report on the OAS. Return to Table 1 - Footnote 2. The population projections start with the population of Canada on 1 July , to which are applied fertility, migration, and mortality assumptions. The population projections are essential to determine the future number of OAS program beneficiaries.

The distribution of the population by age changed considerably with the arrival of the baby boom generation, and the population has been aging since. The causes of this aging are examined in the following subsections. The first cause of the aging of the Canadian population is the decline in the total fertility rate that occurred during the last 50 years. The total fertility rate in Canada decreased rapidly from a level of about 4.

The total fertility rate rose slightly in the early s, but then declined to a level of 1. Canada is one of many industrialized countries that saw their fertility rates increase starting in the s. By , the total fertility rate for Canada reached 1. However, in some industrialized countries, including Canada, the total fertility rate has decreased since , which could be attributable to the most recent economic downturn experienced. As of , the total fertility rate for Canada stood at 1. The overall decrease in the total fertility rate since the s occurred as a result of changes in a variety of social, medical, and economic factors.

Although there have been periods of growth in the total fertility rates in recent decades, it is unlikely that the rates will return to historical levels in the absence of significant societal changes. The assumed age-specific fertility rates lead to an assumed total fertility rate for Canada that will increase from its level of 1. Another element that has contributed to the aging of the population is the significant reduction in the age-specific mortality rates.