Royal Canadian Mounted Police (Dependants) Pension Fund
Public Accounts of Canada 2019 Volume I—Top of the page Navigation
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Management responsibility for financial statements
Responsibility for the integrity and fairness of the financial statements of the Royal Canadian Mounted Police (Dependants) Pension Fund rests with the management of the Royal Canadian Mounted Police.
The financial statements of the Royal Canadian Mounted Police (Dependants) Pension Fund have been prepared in accordance with Canadian accounting standards for pension plans. The financial statements include management's best estimates and judgments where appropriate.
To fulfill its accounting and reporting responsibilities, management has developed and maintained books, records, internal controls and management practices designed to provide reasonable assurance as to the reliability of the financial information and to ensure that transactions are in accordance with the Royal Canadian Mounted Police Pension Continuation Act and regulations as well as the Financial Administration Act and regulations.
These financial statements have been audited by the Auditor General of Canada, the independent auditor for the Government of Canada.
Approved by:
Brenda Lucki
Commissioner
Dennis Watters, CPA, CA
Chief Financial and Administrative Officer
August 2, 2019
Independent Auditor's Report - Royal Canadian Mounted Police (Dependants) Pension Fund
To the Minister of Public Safety and Emergency Preparedness
Report on the Audit of the Financial Statements - TO THE MINISTER OF HUMAN RESOURCES AND SKILLS DEVELOPMENT
Opinion
We have audited the financial statements of the Royal Canadian Mounted Police (Dependants) Pension Fund (the Fund), which comprise the statement of financial position as at 31 March 2019, and the statement of changes in net assets available for benefits and statement of changes in pension obligations for the year then ended, and notes to the financial statements, including a summary of significant accounting policies.
In our opinion, the accompanying financial statements present fairly, in all material respects, the financial position of the Fund as at 31 March 2019, and the changes in its net assets available for benefits and changes in its pension obligations for the year then ended in accordance with Canadian accounting standards for pension plans.
Basis for Opinion
We conducted our audit in accordance with Canadian generally accepted auditing standards. Our responsibilities under those standards are further described in the Auditor's Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the Fund in accordance with the ethical requirements that are relevant to our audit of the financial statements in Canada, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Responsibilities of Management and Those Charged with Governance for the Financial Statements
Management is responsible for the preparation and fair presentation of the financial statements in accordance with Canadian accounting standards for pension plans, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, management is responsible for assessing the Fund's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Fund or to cease operations, or has no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the Fund's financial reporting process.
Auditor's Responsibilities for the Audit of the Financial Statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Canadian generally accepted auditing standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.
As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:
- Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
- Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund's internal control.
- Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.
- Conclude on the appropriateness of management's use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Fund's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor's report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor's report. However, future events or conditions may cause the Fund to cease to continue as a going concern.
- Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation.
We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.
Report on Compliance with Specified Authorities - Royal Canadian Mounted Police (Dependants) Pension Fund
Opinion
In conjunction with the audit of the financial statements, we have audited transactions of the Royal Canadian Mounted Police (Dependants) Pension Fund coming to our notice for compliance with specified authorities. The specified authorities against which compliance was audited are the applicable provisions of the Financial Administration Act and regulations and the Royal Canadian Mounted Police Pension Continuation Act and regulations.
In our opinion, the transactions of the Royal Canadian Mounted Police (Dependants) Pension Fund that came to our notice during the audit of the financial statements have complied, in all material respects, with the specified authorities referred to above.
Responsibilities of Management for Compliance with Specified Authorities
Management is responsible for the Royal Canadian Mounted Police (Dependants) Pension Fund's compliance with the specified authorities named above, and for such internal control as management determines is necessary to enable the Royal Canadian Mounted Police (Dependants) Pension Fund to comply with the specified authorities.
Auditor's Responsibilities for the Audit of Compliance with Specified Authorities
Our audit responsibilities include planning and performing procedures to provide an audit opinion and reporting on whether the transactions coming to our notice during the audit of the financial statements are in compliance with the specified authorities referred to above.
Mélanie Cabana, CPA, CA
Principal
for the Interim Auditor General of Canada
Ottawa, Canada
August 2 2019
| 2019 | 2018 | |
|---|---|---|
| Liabilities | ||
| Pension benefits payable (Note 3) | 268,672 | 75,901 |
| Net assets available for benefits | (negative 268,672) | (negative 75,901) |
| Pension obligations (Note 4) | 11,456,528 | 12,726,596 |
| Deficit to be financed by the Government of Canada (Note 5) | (negative 11,725,200) | (negative 12,802,497) |
Approved by:
Brenda Lucki
Commissioner
Dennis Watters, CPA, CA
Chief Financial and Administrative Officer
August 2, 2019
| 2019 | 2018 | |
|---|---|---|
| Net assets available for benefits, beginning of year | (negative 75,901) | (negative 334,983) |
| (Increase) Decrease in pension benefits payable | (negative 192,771) | 259,082 |
| Net assets available for benefits, end of year | (negative 268,672) | (negative 75,901) |
| 2019 | 2018 | |
|---|---|---|
| Pension obligations, beginning of year | 12,726,596 | 14,390,621 |
| Net interest accrued on benefits | 473,309 | 560,856 |
| Past service contributions from participants | 1,771 | 2,049 |
| Experience losses (gains) | 281,003 | (negative 126,902) |
| Survivor benefit payments and transfers to pension benefits payable | (negative 2,026,151) | (negative 2,100,028) |
| Pension obligations, end of year | 11,456,528 | 12,726,596 |
Notes to the financial statements for the year ended March 31, 2019
1. Description of the Fund
The following is a summary description of the Royal Canadian Mounted Police (Dependants) Pension Fund.
a. General
The Royal Canadian Mounted Police (Dependants) Pension Fund (the Fund) was established in 1934 pursuant to the Royal Canadian Mounted Police Act and is currently operated under Part IV of the Royal Canadian Mounted Police Pension Continuation Act (the Act) (effective 1959) and the related Regulations.
The Act provides for members of the Force, other than commissioned officers, appointed before March 1, 1949, the right to purchase certain survivorship benefits for their dependants by payment of specified contributions.
The Royal Canadian Mounted Police (RCMP) is responsible for the management of the Fund and Public Services and Procurement Canada (PSPC) provides the day-to-day administration of the Fund. The Office of the Chief Actuary (OCA) of the Office of the Superintendent of Financial Institutions (OSFI) performs periodic actuarial valuations of the Fund.
All monetary transactions of the Fund are made through a specified purpose account in the Consolidated Revenue Fund (CRF).
The Fund is accounted for using the standards applicable to a defined benefit pension plan as described in Note 2(a).
b. Funding policy
All eligible members have now retired and, as such, there are no more active members contributing to the Fund; however, retired members may continue to make instalment payments in respect of previous elections made before their retirement.
The Act directs the Minister of Finance to have an actuarial valuation for funding purposes prepared at least every five years. If the actuarial valuation discloses a surplus, the Governor in Council may, by order, increase the benefit payments. If there is an actuarial deficiency, the Governor in Council may direct that there be amounts transferred to the Fund, out of any unappropriated moneys in the CRF, as may be required to re-establish the solvency of the Fund.
c. Survivor benefit payments
The following benefits, as applicable, are payable on the death of a member who has made the scheduled contributions and has left them in the Fund.
i. Widow's pension benefit
The widow is entitled to the pension purchased by the member. In many cases the pension benefit equals approximately 1.5% of the member's final pension benefit payment multiplied by his years of credited service. The pension benefit is payable for life with a guarantee that the total payments shall be no less than the member's contributions.
ii. Lump sum benefits
If a member is not survived by a widow, a lump sum payment is made to the dependants and relatives of the member who are, in the opinion of the Minister, best entitled to share the benefit.
iii. Benefit limitations
Under certain circumstances, the basic death benefits payable to a surviving widow are reduced. This can occur when a member marries after age 60; in that case, the value of the pension to the widow cannot exceed the lump sum payable if he were not survived by a widow.
d. Dividends on survivor benefit payments
The Act provides that if the Fund is substantially in excess of the amount required to make adequate provision for the prospective payments, the Governor in Council may, by order, increase the benefits provided under Part IV of the Act in such manner as may appear equitable and expedient. The authority of the Governor in Council is delegated to the Treasury Board under section 7(2) of the Financial Administration Act.
To date, most of these benefit increases have taken the form of proportionate dividends applied to all basic death benefits, both accrued and prospective.
e. Withdrawal of contributions
A retired member who did not elect to withdraw his contributions from the Fund upon retirement retains the right to do so at any time thereafter; however, all his rights under Part IV of the Act and those of his dependants shall cease upon such election. All returns of contributions are made without interest.
2. Significant accounting policies
a. Basis of presentation
These financial statements present information on the Fund as a separate financial reporting entity independent of the sponsor and Fund members, on a going concern basis. They are prepared to assist Fund members and others in reviewing the activities of the Fund for the year, but they are not meant to portray the funding requirements of the Fund.
These financial statements are prepared in Canadian dollars, the Fund's functional currency, in accordance with Canadian accounting standards for pension plans in Part IV of the Chartered Professional Accountants (CPA) Canada Handbook, Section 4600. Section 4600 provides specific accounting guidance on investments and pension obligations.
For accounting policies that do not relate to either investments or pension obligations, the Fund complies with International Financial Reporting Standards (IFRS) in Part I of the CPA Canada Handbook. To the extent that IFRS in Part I is inconsistent with Section 4600, Section 4600 takes precedence.
The financial statements for the year ended March 31, 2019, were authorized for issue by the signatories on August 2, 2019.
b. Significant accounting policies
The significant accounting policies are as follows:
i. Survivor benefit payments
Benefits are recognized on an accrual basis as a reduction of pension obligations and net assets available for benefits upon the death of a member who has made the scheduled contributions and has left them in the Fund or upon the death of a widow.
ii. Pension obligations
The pension obligations are determined based on the most recent actuarial valuation for funding purposes prepared by the OCA. The valuation is updated annually based on data as at the financial statement date. The pension obligations are equal to the value of all future benefits payable, discounted in accordance with actuarial assumptions, which are based on management's best estimate assumptions.
iii. Services provided without charge and related party transactions
The Fund does not record the value of administrative services it receives without charge from various government departments and agencies as they are insignificant in the context of the financial statements taken as a whole. These services include the following:
- Financial management and other support services from the RCMP;
- Actuarial valuation and other services from the OCA;
- Office of the Auditor General of Canada audit costs.
c. Sources of estimation uncertainty
In preparing these financial statements, management uses estimates and assumptions that primarily affect the reported amounts of liabilities and related disclosures.
In making estimates and using assumptions, management relies on external information and observable conditions where possible. The estimates and assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ significantly from the estimates and assumptions.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future periods.
The pension obligations are the most significant item where estimates and assumptions are used. The pension obligations depend on a number of factors that are determined on an actuarial basis using a number of estimates and assumptions, such as discount rates (future interest rates used to credit the Fund), mortality rates, proportion of members married, and age of new widows. The Fund consults with external actuaries from the OCA regarding these estimates and assumptions annually. Any changes will impact the carrying amount of the pension obligations. Details of these estimates and assumptions have been disclosed in Note 4.
3. Pension benefits payable
Pension benefits payable represent the lump sum benefits that became payable upon the death of members or widows during the year but had not yet been paid at year end. At March 31, 2019, the pension benefits payable were $268,672 (2018 – $75,901).
4. Pension obligations
The pension obligations are determined based on the most recent actuarial valuation prepared for funding purposes. Actuarial valuations for funding purposes are to be performed not more than five years apart. The most recent actuarial valuation for funding purposes was conducted as of March 31, 2016, and tabled in Parliament on January 18, 2017. The next actuarial valuation for funding purposes as of March 31, 2019, will be tabled in Parliament in 2020.
The most recent actuarial valuation for funding purposes disclosed an actuarial surplus of $1,348,000. On April 13, 2017, an Order in Council approved that a portion of this surplus be distributed by annual effective increases in the pension amount of 1.9% as at April 1, 2017, 1.9% as at April 1, 2018, and of 1.9% as at April 1, 2019, and by increases to lump sum death benefits and residual payments.
The remaining balance of the actuarial surplus is intended to be used over the remaining life of the Fund for the payment of increases in the pension benefits. At March 31, 2019, the average age of members was estimated to be 93.3 years and the average age of widows was estimated to be 90.6 years. The remaining life of the Fund was estimated at 29 years based on the statutory actuarial valuation as at March 31, 2016.
Management's best estimate assumptions used in the determination of the pension obligations include economic and non-economic assumptions. The non-economic assumptions include considerations such as mortality rates, proportion of members married, and age of new widows. Mortality rates for members are based on mortality rates for male Regular Members from the actuarial report on the pension plan for the Royal Canadian Mounted Police as at March 31, 2015. Mortality rates for widows are based on those of the 2014 Canadian Pensioners Mortality Table (CPM2014). Mortality rates are reduced in the future with the same mortality improvement assumptions made for the Actuarial Report on the Canada Pension Plan as at the date of the actuarial valuation for funding purposes. The primary economic assumptions relate to future interest rates used to credit the Fund. The interest rate is derived from the yield on a notional long-term portfolio of 20-year Government of Canada bonds issued at prescribed interest rates and held to maturity, as at the date of the actuarial valuation for funding purposes. The assumptions are evaluated for continued relevancy.
The valuation of pension obligations is updated annually for transactions occurring during the period, including experience gains due to changes in the Fund’s member and widow population. The information in these financial statements is based on this annual updated valuation of pension obligations conducted as at March 31, 2019. At that date, the present value of pension obligations was $11,456,528 (2018 – $12,726,596).
The interest rate for the year-ended March 31, 2019, is 4.0% (2018 – 4.2%) per annum. The expected long-term interest rate is estimated to decline to 3.1% (2018 – 3.1%) per annum by the year 2031 (2018 – by the year 2031) and to rise to an ultimate level of 4.6% (2018 – 4.6%). Variations in any of these assumptions can result in a significantly higher, or lower, estimate of the liability.
During the year, no amendments were made to the Fund (2018 – nil).
5. Deficit to be financed by the Government of Canada
All transactions of the Fund are made through a specified purpose account in the CRF and are reported in the Public Accounts of Canada. This includes receiving contributions, recording interest earned on the Fund and paying survivor benefits.
The government has a statutory obligation to pay benefits relating to the Fund. This pension obligation is to the survivors of the participants who contributed to the Fund over the years. However, if the Fund is substantially in excess of the amount required to make adequate provision for the prospective payments, the Governor in Council may increase benefits in order to disburse the surplus to the survivors. As a result, the government has an obligation to the beneficiaries for the balance of the Fund as reported in the specified purpose account.
The following table illustrates these obligations as at March 31:
(in Canadian dollars)
| 2019 | 2018 | |
|---|---|---|
| Opening balance, specified purpose account | 14,055,572 | 15,791,975 |
| Receipts and other credits | 531,926 | 622,707 |
| Payments and other charges | (negative 1,809,822) | (negative 2,359,110) |
| Closing balance, specified purpose account | 12,777,676 | 14,055,572 |
| Deficit to be financed by the Government of Canada | (negative 11,725,200) | (negative 12,802,497) |
| Excess owed to beneficiaries | 1,052,476 | 1,253,075 |