This article originally appeared in the CIA (e)Bulletin.
By Michel Montambeault, FCIA
The following is a refresher about how the review works, based on a previous article on the process that appeared in the June 2016 edition of the (e)Bulletin.
Every three years, the Office of the Chief Actuary (OCA) is required by law to produce an actuarial report on the Canada Pension Plan (CPP). To ensure that the report meets high professional standards and is based on reasonable methods and assumptions, the OCA commissions an independent peer review of it, conducted by individuals who are fully qualified actuaries.
The federal and provincial finance ministers endorse regular external peer reviews of the CPP actuarial reports. These reviews have contributed significantly to the quality, transparency, and credibility of the OCA’s actuarial reports. The OCA considers in depth each recommendation made by the panels, and many of the recommendations have been implemented over the years. The OCA looks forward to the next independent review to further improve the content of the actuarial report and to reinforce the independence of the office.
Panel member selection
The OCA begins work on the report more than a year before it is due. By the early spring of the year in which the report will be released, the OCA starts the process to select the three independent reviewers who will form the independent peer review panel. Interested applicants can read a summary of the process and terms of reference and fill out an application form. This year, the application deadline is June 16.
Applicants are vetted by the UK Government Actuary’s Department (GAD), which compares the qualifications of the applicants and ranks them, and selects the panel members by September. The GAD is recognized internationally for its work in the field of social security. Having a third party involved further increases the credibility of the review process.
All of the reviewers selected must be FCIAs, except for possibly one. As recommended by the previous review panel, the selection may allow for one other fully qualified actuary who belongs to another actuarial association that is a full member of the International Actuarial Association and that requires its members to comply with the professional standards of the CIA.
In addition to being an FCIA or other fully qualified actuary, experience in social security, pensions, investments, and risk management, as well as volunteering, publications, and actuarial association committee experience, are just some of the criteria used to classify the candidates for the panel.
The independent peer review panel does not see the Actuarial Report on the CPP until it is tabled in the House of Commons in December. In the months between their appointment and access to the report, panel members receive binders of the background information, working files, and other materials that describe the valuation data, methods, and assumptions that the OCA used to do its work. This information includes the documentation of all the demographic, economic, and investment assumptions, as well as presentations that were made by outside experts at the triennial CPP seminar organized by the OCA in September 2018, and presentations on the valuation methods and assumptions made by OCA staff to other organizations.
Once it receives the CPP report, the panel has three months to produce its own report. The panel sends questions to the OCA, and the OCA meets personally with the panel over two to three days to provide them with answers. The panel asks additional questions during the meeting and also takes a day and a half to meet with organizations that OCA staff met with, including Statistics Canada, Finance Canada, and the Canada Pension Plan Investment Board (CPPIB).
The chief actuary receives a draft of the panel’s report before it is finalized. The UK GAD reviews the panel’s final report and provides an opinion on the work done by the reviewers. The review panel report and GAD opinion are then released to the public.
A fascinating field with much to learn
Staff at the CIA Head Office reached out to Rob Brown, Professor Emeritus in the statistics and actuarial science department at the University of Waterloo, who has worked on four CPP peer reviews, to learn more about his experience. “Studying social security systems is like peeling an onion,” he says. “Every time an unknown becomes known, another question arises. It never ends. And it is infinitely fascinating. It is also rewarding to work with very bright people like those in the Office of the Chief Actuary.”
Improving the Actuarial Report on the CPP and protecting the public interest
The process benefits everyone all around. It provides the OCA with valuable feedback on the report and assures Canadians that the OCA is doing things properly – according to professional standards and using reasonable methods and assumptions, thereby promoting Canadians’ confidence in the valuations of the CPP as well as other programs for which the OCA is responsible.
The panel usually makes between 8–12 recommendations, covering various aspects of the valuation. The OCA tries to put them into place. It’s a positive for the OCA in making sure its reports are better each time they are done.
Michel Montambeault, FCIA, is Director at the Office of the Chief Actuary within the Office of the Superintendent of Financial Institutions.
This article reflects the opinion of the author and does not represent an official statement of the CIA.