Government Annuities Account
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Management's responsibility for financial statements - Government Annuities Account
The financial statements of the Government Annuities Account are prepared in accordance with Canadian accounting standards for pension plans by the management of Employment and Social Development Canada. Management is responsible for the integrity and objectivity of the information in the financial statements, including the amounts which must, of necessity, be based on best estimates and judgment. The significant accounting policies are identified in Note 2 to the financial statements.
To fulfill its accounting and reporting responsibilities, management has developed and maintains books of account, financial and management controls, information systems and management practices. These systems are designed to provide reasonable assurance that financial information is reliable, that assets are safeguarded and that transactions are properly authorized and recorded in accordance with the Government Annuities Improvement Act and the Government Annuities Act and regulations.
The Auditor General of Canada, the external auditor of the Government Annuities Account, conducts an independent audit of the financial statements in accordance with Canadian generally accepted auditing standards and provides a report to the Minister of Employment and Social Development Canada, styled as Minister of Employment, Workforce Development and Disability Inclusion.
Graham Flack
Deputy Minister
Employment and Social Development Canada
Mark Perlman, CPA, CMA
Chief Financial Officer
Employment and Social Development Canada
Gatineau, Canada
October 2, 2020
Report of the Actuary
The Office of the Chief Actuary, Office of the Superintendent of Financial Institutions Canada, has the mandate of performing the annual actuarial valuation of the Government Annuities Account (the "Account") as at 31 March 2020. The purpose of this valuation is to determine the actuarial liabilities and financial position of the Account as at 31 March 2020. The results of the valuation are included in the Public Accounts of Canada as well as in the Account's financial statements.
As at 31 March 2020, the actuarial liabilities calculated in accordance with the Government Annuities Improvement Act and the Government Annuities Regulations and used to determine the amount charged to the Account and credited to the Consolidated Revenue Fund, are based on prescribed mortality and interest rates. In addition, the actuarial liabilities presented in the statement of financial position, statement of changes in net assets available for benefits, and statement of changes in pension obligations of the Account's financial statements, are based on alternative mortality and interest rates.
The valuation of the Account's actuarial liabilities and financial position is therefore based on:
- membership data as at 31 March 2020 provided by Employment and Social Development Canada (ESDC) and Service Canada;
- asset data provided by ESDC;
- prescribed mortality and interest rates:
- mortality rates as per the Government Annuities Regulations, that is, the Annuity Table for 1983, for individual and group annuities, as modified by Projection Scale G published by the Society of Actuaries; and
- a seven percent annual interest rate as per the Government Annuities Regulations.
For purposes of the Account's financial statements, the alternative mortality and interest rates are as follows:
- best-estimate experience-adjusted mortality rates; and
- interest rate determined using the yield curve approach. The yield curve is determined by reference to market yields at the end of the reporting period on Government of Canada bonds and treasury bills.
The Account's assets are notional and in the form of a deposit with the Receiver General for Canada. Therefore, actuarial liabilities equal the present value of future payments discounted at the prescribed or alternative interest rate. Since administrative expenses are paid by the government out of general funds, no provision for expenses is made in the valuation. This valuation contains no added margins for adverse deviation.
In our opinion, considering that the valuation is prepared pursuant to the Government Annuities Act and the Government Annuities Improvement Act:
- the data on which our valuation is based are sufficient and reliable for the purpose of the valuation;
- the assumptions used comply with legislative requirements;
- the alternative mortality and interest rates assumptions used for purposes of the Account's financial statements are reasonable and appropriate;
- the methods employed are appropriate for the purposes of the valuation; and
- the actuarial valuation is appropriate, it conforms to statutory requirements and the financial statements fairly present its results.
Our valuation has been prepared, and our opinion given, in accordance with accepted actuarial practice in Canada. As at 2 October 2020, we have not learned of any events that would have a material impact on the results as at 31 March 2020. The next valuation will be performed as at 31 March 2021.
Annie St-Jacques
Fellow of the Canadian Institute of Actuaries
Office of the Chief Actuary
Thierry Truong
Fellow of the Canadian Institute of Actuaries
Office of the Chief Actuary
Alice Chiu
Associate of the Canadian Institute of Actuaries
Office of the Chief Actuary
Office of the Superintendent of Financial Institutions Canada
Ottawa, Canada
2 October 2020
Independent Auditor's Report - Government Annuities Account
To the Minister of Employment, Workforce Development and Disability Inclusion
Report on the Audit of the Financial Statements - To the Minister of Employment and Social Development
Opinion
We have audited the financial statements of the Government Annuities Account (the Account), which comprise the statement of financial position as at 31 March 2020, 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 Account as at 31 March 2020, 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 Account 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 Account'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 Account or to cease operations, or has no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the Account'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 Account'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 Account'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 Account 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 - Government Annuities Account
Opinion
In conjunction with the audit of the financial statements, we have audited transactions of the Government Annuities Account coming to our notice for compliance with specified authorities. The specified authorities against which compliance was audited are the Government Annuities Improvement Act and the Government Annuities Act and regulations.
In our opinion, the transactions of the Government Annuities Account 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 Government Annuities Account's compliance with the specified authorities named above, and for such internal control as management determines is necessary to enable the Government Annuities Account 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.
Original signed by
Heather McManaman, CPA, CA
Principal
for the Auditor General of Canada
Halifax, Canada
2 October 2020
| 2020 | 2019 | |
|---|---|---|
| Net assets available for benefits | ||
| Accounts receivable | 56 | 50 |
| Pension obligations (Note 3) | 114,761 | 122,943 |
| Deficit to be financed by the Government of Canada (Note 4) | 114,705 | 122,893 |
Approved by:
Graham Flack
Deputy Minister
Employment and Social Development Canada
Mark Perlman, CPA, CMA
Chief Financial Officer
Employment and Social Development Canada
| 2020 | 2019 | |
|---|---|---|
| Received or Paid by the Government of Canada | ||
| Annuity payments | 15,749 | 17,469 |
| Premium refunds and other (Note 4) | 14 | 33 |
| Total | 15,763 | 17,502 |
| Amount paid through the Consolidated Revenue Fund | (negative 15,763) | (negative 17,502) |
| Administrative expenses | ||
| Services received without charge (Note 5) | 1,559 | 1,280 |
| Services contributed by Employment and Social Development Canada (Note 5) | (negative 1,559) | (negative 1,280) |
| Change in accounts receivable and increase in net assets available for benefits | 6 | 3 |
| Net assets available for benefits at beginning of year | 50 | 47 |
| Net assets available for benefits at end of year | 56 | 50 |
| 2020 | 2019 | |
|---|---|---|
| Pension obligations at beginning of year | 122,943 | 134,646 |
| Interest | 1,966 | 2,626 |
| Annuity payments and other items (Note 4) | (negative 15,809) | (negative 17,558) |
| Experience losses (gains) (Note 4) | (negative 345) | 236 |
| Losses due to change in discount rate assumptions (Note 4) | 5,944 | 2,993 |
| Losses due to change in mortality assumptions (Note 4) | 62 | – |
| Pension obligations at end of year (Note 3) | 114,761 | 122,943 |
1. Authority, objective and responsibilities
The Government Annuities Account (the Account) was established in 1908 by the Government Annuities Act, as modified by the Government Annuities Improvement Act.
The purpose of the Government Annuities Act was to assist individuals and groups of Canadians to prepare financially for their retirement by purchasing Government Annuities. In 1975, the Government Annuities Improvement Act discontinued future sales of Government Annuity contracts. Annuities are deferred until their maturity date, at which time payments to annuitants begin.
The Account is administered by Employment and Social Development Canada (ESDC) and operates through the Consolidated Revenue Fund.
2. Significant accounting policies
(a) Basis of presentation
The financial statements of the Account are prepared in accordance with Canadian accounting standards for pension plans (Section 4600) on a going concern basis. They are prepared in thousands of Canadian dollars, the Account's functional currency. Section 4600 provides specific accounting guidance on pension obligations. For accounting policies that do not relate to pension obligations, the Account complies with International Financial Reporting Standards (IFRS) in Part I of the Chartered Professional Accountants (CPA) Canada Handbook-Accounting. To the extent that IFRS in Part I are inconsistent with Section 4600, Section 4600 takes precedence.
The financial statements for the year ended March 31, 2020 were authorized for issue by the signatories on October 2, 2020.
(b) Pension obligations
The method utilized to calculate the pension obligations comprises, in respect of deferred and matured annuities, the present value of such annuities determined on an actuarial basis using best estimate experience-adjusted mortality tables as at March 31, 2020. The discount rates used to measure the present value are based on the Government of Canada's cost of borrowing derived from the yields on the actual zero-coupon yield curve for Government of Canada bonds which reflect the timing of the expected future cash flows.
(c) Services received without charge
Administrative services received without charge from ESDC are recorded in the statement of changes in net assets available for benefits at their estimated cost. A corresponding amount is credited directly to the statement of changes in net assets available for benefits.
(d) Measurement uncertainty
The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amount of net assets available for benefits, pension obligations and interest at the date of the financial statements. The pension obligations depend on factors that are determined on an actuarial basis using assumptions such as mortality and discount rates. Any changes in these assumptions will impact the carrying amount of the pension obligations. The carrying amount of the pension obligations as at the end of the reporting fiscal years is presented in Note 3. Actual results may differ significantly from the estimates and assumptions; therefore, it is possible that the amounts for the pension obligations and related accounts could change materially in the near term. 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.
3. Pension Obligations
The Office of the Chief Actuary, an independent unit within the Office of the Superintendent of Financial Institutions Canada, performs the annual actuarial valuation of the pension obligations every year as at March 31.
The pension obligations amounted to:
(in thousands of Canadian dollars)
| 2020 | 2019 | |
|---|---|---|
| Pension obligations: | ||
| Deferred annuities | 3,359 | 4,239 |
| Mature annuities | 111,402 | 118,704 |
| Total | 114,761 | 122,943 |
The equivalent flat discount rates used in measuring the pension obligations as at March 31 and the related accrued interest for the year were as follows:
| 2020 | 2019 | |
|---|---|---|
| Pension obligations | 0.93% | 1.72% |
| Interest | 1.72% | 2.10% |
The average age of annuitants was estimated to be 86.0 years and the remaining duration of the Account was estimated at 39 years as at March 31, 2020.
The next actuarial valuation will be performed as at March 31, 2021.
4. Deficit to be financed by the Government of Canada
The Government Annuities Act provided authority for the Government of Canada to sell annuities to the Canadian public. The Government of Canada entered into annuity contracts with a promise to pay the annuities and is required under the Act to keep an account, the Government Annuities Account, within the accounts of Canada to record all transactions related to these annuities. These transactions include all moneys received and paid relating to the granting of an annuity, unclaimed and reclaimed annuities and the obligations representing the present value of prospective annuities contracted. It also includes the accrual of interest on the pension obligations.
(in thousands of Canadian dollars)
| 2020 | 2019 | |
|---|---|---|
| Deficit to be financed by the Government of Canada at beginning of year | 122,893 | 134,599 |
| Interest | 1,966 | 2,626 |
| Reclaimed annuities | 32 | – |
| Unclaimed annuities | (negative 84) | (negative 59) |
| Annuity payments | (negative 15,749) | (negative 17,469) |
| Premium refunds and other | (negative 14) | (negative 33) |
| Experience losses (gains) | (negative 345) | 236 |
| Losses due to change in discount rate assumptions | 5,944 | 2,993 |
| Losses due to change in mortality assumptions | 62 | – |
| Subtotal | (negative 8,188) | (negative 11,706) |
| Deficit to be financed by the Government of Canada at end of year | 114,705 | 122,893 |
Interest
Interest is recorded on an accrual basis and is calculated on the pension obligations using the equivalent flat discount rate at the end of the prior fiscal year.
Reclaimed annuities
Reclaimed annuities represent previously unclaimed amounts of annuitants that could not be located. If the annuitants are subsequently located, the actuarial present value of these annuities is paid.
Unclaimed annuities
Unclaimed annuities represent amounts of annuities that could not be paid because the annuitants could not be located.
Premium refunds
Premium refunds represent the full reimbursement of premiums upon the cancellation of an annuity contract at maturity.
Losses (gains) due to experience and changes in actuarial assumptions
At the end of any fiscal year, the amount of the pension obligations may be different than expected due to changes resulting from experience adjustment and the effects of changes in actuarial assumptions.
As there are no new contracts purchased under the Government Annuities Act, the main sources of experience gains or losses are mortality and retirements of existing members. Mortality gains and losses include changes in expected future payments due to death or survival of annuitants and the difference between actual and expected benefit payments during the year.
Management's best estimates of the pension obligations are based on mortality rates, used for the actuarial assessments of the Canada Pension Plan, and discount rates. The pension obligations as at March 31, 2020 was estimated based on mortality rates used in the Thirtieth Actuarial Report on the Canada Pension Plan.
5. Related party transactions
The Account is related to Government departments, agencies and Crown corporations through common control held by the Government of Canada. There were no further significant transactions with related parties other than those described in Note 2c) Services received without charge. These administrative services include the following:
(in thousands of Canadian dollars)
| 2020 | 2019 | |
|---|---|---|
| Salaries | 1,047 | 889 |
| Operating costs | 389 | 288 |
| Actuarial services | 123 | 103 |
| Services received without charge | 1,559 | 1,280 |
6. Pension obligations calculated as per the Government Annuities Improvement Act and Government Annuities Regulations
As per the Government Annuities Improvement Act and Government Annuities Regulations, expected future payments are to be discounted using an annual interest rate of seven percent. Future payments are to be estimated using the mortality rates from the 1983 mortality tables published by the Society of Actuaries, for individual and group annuities respectively, modified by Projection Scale G. Pension obligations are to be initially recorded through the Government Annuities Account established within the Public Accounts of Canada. Based on the Act and Regulations, the pension obligations are estimated at $85.4 million ($96.3 million in 2019).
Adjustments required to reflect the pension obligation using both experience-adjusted mortality rates and current discount rates in accordance with Canadian accounting standards for pension plans were recorded in these financial statements and in the Public Accounts of Canada.
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