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Office of the Chief Actuary Bureau de l’actuaire en chef
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1
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
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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?
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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
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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.
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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
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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
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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)
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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)
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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
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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
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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
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Elderly Mortality Rates have decreased over the last 80 years, more so over the last 10 years
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Ages 85-89
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For ages over 90, heart diseases remain the main cause of deaths
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Ages 90+
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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.
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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