Royal Canadian Mounted Police Pension Plan Annual Report 2007-2008

Table of Contents

Message from the Minister of Public Safety and Emergency Preparedness
Financial Highlights
RCMP Pension Plan at a Glance
Governance and Administration
Investment Management
2007-2008 Results
Financial Statements
Schedule I – Public Accounts
Schedule II – Plan Membership
Corporate
Glossary of Terms

Message from the Minister of Public Safety and Emergency Preparedness

Pursuant to section 31 of the Royal Canadian Mounted Police Superannuation Act, I am pleased to submit the Annual Report of the RCMP Pension Plan for the year ending March 31, 2008.

Yours sincerely,
The Honourable Peter Van Loan, P.C., M.P.
Minister of Public Safety

 

Financial Highlights

Year End Financial Position

• Net assets and other accounts available for benefits were $14,821 million. Net assets and other accounts consist of the balance in the RCMP Superannuation Account of $11,989 million, the net investments at fair value of $2,791 million, and other assets and liabilities of $41 million.
• Investments managed by the Public Sector Pension Investment Board (PSP Investments) were invested as follows:

The above Pie Chart shows Investments managed by the Public Sector Pension Investment Board (PSP Investments):

0% of Asset Classes (As at March 2008)

• Small Cap Developed World Equity - 5.0 percent
• Emerging Markets Equity - 7.0 percent
• Private Equity - 10.2 percent
• Real-Return Assets - 19.4 percent
• Nominal Fixed Income - 19.6 percent
• Developed World Equity - 38.8 percent

Source: Public Sector Pension Investment Board

• Accrued pension benefits were $13,438 million.
  
  The excess of the actuarial value of net assets and other accounts available for benefits over accrued pension benefits was $1,365 million.

Investment Performance

• The RCMP Superannuation Account earned $833 million in interest, representing a 7.1% rate of return.
  
• The investments managed by PSP Investments lost $9 million, representing an overall rate of return of (0.3)%. The one-year rate of return earned by the PSP Investments of (0.3)%, was the first negative return reported by the PSP Investments in the past five years, compared to 11.3% in fiscal 2007 and 19.1% in fiscal 2006. However, the five-year annualized return of 12.5%, and 10.7%, after inflation, continues to exceed the long-term goal of 4.3% over inflation. PSP Investments’ investment returns continue to rank in the top quartile of Canadian pension funds.

RCMP Pension Plan at a Glance

Overall

• The RCMP Pension Plan is a contributory defined benefit pension plan.
  
  Benefits are determined based on a formula set out in the RCMP Superannuation Act (RCMPSA) and are not based on the financial status of the Plan or the rate of return on plan assets.
  
  Membership in the Plan is compulsory for all members of the RCMP, regardless of length of service.

Benefits

• Entitlement to benefits depends on either service in the Force or pensionable service. There are different provisions for regular and civilian members.
  
• The basic benefit upon retirement is an annuity equal to 2% of average pensionable earnings during the best five years of consecutive service multiplied by the number of years of pensionable service. The maximum benefit is 70% of average pensionable earnings.
  
• Members who do not have the required years of service to obtain an immediate annuity upon termination may be entitled to receive an annual allowance, a deferred annuity, a commuted value, a return of contributions, or a cash termination allowance, depending on the circumstances.
  
• The Plan also provides benefits to members in case of disability and to the spouse and children in case of death of a member.
  
• Benefits are integrated with the Canada Pension Plan (CPP) and the Quebec Pension Plan (QPP). Pursuant to the Budget of May 2, 2006 and ensuing Budget Implementation Act 2006 that received Royal Assent on June 22, 2006, amendments were made to the Royal Canadian Mounted Police Superannuation Act. Since, January 1, 2008, these amendments have been decreased from 0.7% to 0.625% over a five-year period, the pension reduction factor that results from the coordination of benefits with the CPP and QPP for plan members reaching age 65 in 2008 and beyond.
  
• Benefits are indexed to the increase in the cost of living, as measured by the increase in the Consumer Price Index to ensure that benefits are not eroded by inflation.

Plan Membership

• As of March 31st, 2008, the Plan had 35,689 members. The membership consisted of 21,136 active contributors, 12,892 pensioners, and 1,661 survivors. (See membership profile in schedule II.)

The above Pie Chart shows the RCMP Pension Plan Membership Profile (as of March 31, 2009)

• Survivors - 5 percent
• Pensioners - 36 percent
• Active Contributors - 59 percent

Source: Morneau Sobeco

Contributions

• During the first 35 years of pensionable service, members contribute a percentage, [currently 4.6% (4.3% in 2007)] for the first nine months and 4.9% (4.6% in 2007) for the last three months of pensionable earnings up to the maximum salary covered by the Canada Pension Plan and/or Quebec Pension Plan and a higher percentage, [currently 8.1% (7.8% in 2007) for the first nine months and 8.4% (8.1% in 2007) for the last three months of pensionable earnings above that amount.
• Members who have achieved 35 years of service contribute 1% of pensionable earnings.
• The Government of Canada contributions are based on member contributions multiplied by specified rates determined by the President of the Treasury Board. The rates are based on whether the member contribution was for current or past service and if the election to purchase prior service was made before or after April 1, 2000. During the year, the Government of Canada was required to contribute at the following rates:

April 1, 2007 – December 31, 2007

Post- March 31, 2000
Current service	2.40	2.40
Elected service
Single rate	1.00	2.40
Double rate	0.00	0.70
Double and a half rate	0.00	0.36

January 1, 2008 –March 31, 2008

Pre-April 1, 2000		Post- March 31, 2000
Current service	2.26	2.26
Elected service
Single rate	1.00	2.26
Double rate	0.00	0.63
Double and a half rate	0.00	0.30

• The elected service rates listed are for contributions for periods of leave without pay which are set out in RCMP Superannuation Regulations. Depending on the type of leave, the member must repay contributions at a rate either equal to single rate, double, or two and one-half times the amount that would have been payable had he/she not been absent.
  
• Member contribution rates have been increased, through a yearly adjustment of 0.3% of salary since January 1, 2007 and January 1, 2008, respectively, to result in final rates of 4.6% and 4.9% on pensionable earnings up to the maximum salary covered by the Canada Pension Plan and/or Quebec Pension Plan and 8.1% and 8.4% of earnings above that amount. The increase in member contributions rates reflects the Government of Canada’s goal of ensuring the costs of the Plan are shared in a balanced way between plan members and the Government, and ultimately, the Canadian taxpayers.

Governance and Administration

The RCMP Pension Plan is governed by the RCMP Superannuation Act and Regulations.

The Government of Canada is the sole sponsor of the Plan and the Minister of Public Safety and Emergency Preparedness(the "Minister") is the Minister¹ responsible for the Plan. The RCMP is the administrator of the Plan. PSP Investments manages the Plan's investments which are the excess of contributions made after April 1, 2000 over benefits and administration costs that is invested in capital markets.

The Minister is responsible for approving recommendations made by the RCMP Pension Advisory Committee, for tabling the annual report and for tabling legislative changes to the RCMPSA in Parliament.

RCMP

The RCMP is the administrator of the Plan. The RCMP is headed by the Commissioner who under the direction of the Minister has the control and management of the RCMP and all matters connected therewith. The Commissioner, in turn, has delegated responsibility for the financial administration and management of the RCMP Pension Plan to the Deputy Commissioner, Corporate Management & Comptrollership and the Deputy Commissioner, Chief Human Resources Officer

The RCMP is responsible for determining eligibility for benefits, calculating and paying benefits, developing legislation and related policies, providing information to plan members and providing the necessary secretariat support for committees. On April 1, 2003, the RCMP outsourced many of the day to day administrative activities of the Plan previously performed by employees of the RCMP and Public Works and Government Services Canada (PWGSC) to Morneau Sobeco.

RCMP Pension Advisory Committee

The RCMP Pension Advisory Committee (PAC) was established under Section 25.1 of the RCMPSA and fulfills an advisory role to the Minister. The Committee has a mandate to:

• Review the administration, design and funding of the benefits provided under the Act;
• Review and make recommendations on any other pension-related matters the Minister may refer to the Committee; and,
• Provide two candidates to the Nominating Committee for appointment as directors of the Public Sector Pension Investment Board.

The Committee consists of eight members. Committee members are appointed by the Minister for up to three years and can be re-appointed. The Committee consists of three Division Staff Relations Representatives, two contributors to the RCMP Superannuation Account, one representative from the RCMP Veterans’ Association and two other independent members. Two Committee members also serve as representatives of the RCMP Pension Plan on the nominating committee for the Board of Directors of PSP Investments.

The RCMP PAC has no authority to make decisions affecting the administration, the funding or the design of the Pension Plan, but can make recommendations to the Minister or to RCMP management on such issues. Decisions on changes to plan administration are the responsibility of the RCMP management, acting in its capacity as the Plan Administrator for the Pension Plan. Decisions on changes to plan design, funding, or the RCMPSA andRegulations are the responsibility of the Government of Canada, acting in its capacity as Plan Sponsor. The RCMP senior management and the Minister would approve changes in plan design, funding, administration or the RCMPSA andRegulations prior to a Submission to TB Ministers.

The activities of the RCMP PAC are reported through the Pension Advisory Committee (PAC) News.

RCMP Pension Finance Oversight Committee

The RCMP Pension Finance Oversight Committee (PFOC) was established on April 6th, 2004 to assist the Deputy Commissioner, Corporate Management & Comptrollership and the Chief Human Resources Officer on matters related to the financial administration and management of the RCMP Pension Plan. The Chairpersons of the Pension Finance Oversight Committee report directly to the Deputy Commissioner, Corporate Management & Comptrollership and the Chief Human Resources Officer.

The role of the PFOC is to play a challenge function and provide advice and recommendations to the National Compensation Services concerning the review, management and control of total administration costs charged to the RCMP Pension Plan.

Pension Administration Outsourcing Project Steering Committee

On July 10, 2006 the RCMP Senior Executive Committee approved the recommendation of the Deputy Commissioner Human Resources to re-tender to industry the provision of pension administration services on behalf of RCMP Pension Plan members, their survivors and beneficiaries and Preliminary Project Approval to establish the Pension Administration Outsourcing Project (PAOP) was granted.

The Pension Administration Outsourcing Project Steering Committee (PAOP SC) was formally established, effective April 16, 2007 with a mandate to assist the Project Sponsors (Deputy Commissioner, Corporate Management & Comptrollership and the Deputy Commissioner, Human Resources) on matters related to the provision of pension administration services and the management of the RCMP Pension Plan post March 31, 2010, the date on which the current contract with Morneau Sobeco will expire.

The Steering Committee is established to assure effective controls are in place to ensure alignment with strategic organizational direction and resolution of project issues that could jeopardize the RCMP obligations with respect to continued pension payments after contract expiry on March 31, 2010.

The role of the PAOP SC is to provide strategic leadership, decision support and interface with RCMP Senior Executive Committee on the development of a solid Business Case and TB Submission for the outsourcing of pension administration beyond the current service provider.

PWGSC

Prior to the outsourcing, PWGSC provided certain pension administration services under a memorandum of understanding with the RCMP. During the year, PWGSC continued to issue payments to beneficiaries of the Plan and provided transition support services related to the outsourcing implementation. Additionally, during the period, PWGSC, under a memorandum of understanding, undertook on behalf of the Plan, a Feasibility study to determine if the future requirements of the Plan could be met by the solution currently being developed by PWGSC Government of Canada Pension Modernization Project (GCPMP). The results of the Feasibility Study will be fed into the Pension Administration Outsourcing Project (PAOP) Business Case. The Business Case will provide recommendations on the future course of the administration of the Plan.

Morneau Sobeco

On April 1, 2003, the administration of the RCMP Pension Plan was outsourced to Morneau Sobeco, a recognized private sector leader in the delivery of pension plan administration.

These activities were outsourced to achieve better service and systems.

Treasury Board

Treasury Board is responsible to establish principles for charging administration costs to the Plan, establish contribution rates, manage surpluses and exercise power as the Governor in Council under the RCMPSA.

The President of the Treasury Board is also responsible for the Public Pensions Reporting Act, the Public Sector Pension Investment Board Act, and the Special Retirement Arrangements Act.

Office of the Superintendent of Financial Institutions

In accordance with the Public Pensions Reporting Act, the Chief Actuary of the Office of Superintendent of Financial Institutions (OSFI) conducts triennial actuarial reviews of the Plan and is required to prepare and file with the President of the Treasury Board a cost certificate, an actuarial valuation report and an assets report on the state of the Plan.

Office of the Auditor General

Pursuant to the Auditor General Act, the Office of the Auditor General audits the financial statements of the Plan.

Investment Management

RCMP Superannuation Account (the "Account")

The Account represents contributions, net of benefit payments and administrative charges, in respect of service provided by members prior to April 1, 2000. The Account earns interest at rates based on long-term Government of Canada bond rates. A summary of transactions during the current and prior periods to the Account is included in Schedule I.

RCMP Pension Fund (the “Fund”)

Contributions, net of benefit payments and administrative charges, in respect of service provided by members on or after April 1, 2000 are transferred periodically to PSP Investments for investment in the capital markets. The balance at year-end in the Fund represents the amount in transit to PSP Investments. A summary of transactions during the current and prior periods to the Fund is included in Schedule I.

PSP Investments

PSP Investments is a Crown corporation established by the Public Sector Pension Investment Board Act in September 1999 and commenced operations on April 1, 2000, to invest in financial markets the net contributions received from the Public Sector Pension Plan, the Canadian Forces Pension Plan and the RCMP Pension Plan. PSP Investments has also the mandate to manage the employer and employee contributions made after March 1, 2007 to the Reserve Force Pension Plan.

Investment Objectives

The mandate of PSP Investments is set out in section 4 of the Public Sector Pension Investment Board Act (the Act):

• To manage the funds transferred to PSP Investments in the best interest of the contributors and beneficiaries of the Plans; and,
  
• To maximize returns without undue risk of loss, having regard to the funding, policies and requirements of the pension plans and the ability of those plans to meet their financial obligations.

Based on these statutory objectives, the following investment objectives were established:

• Absolute Performance: Achieving a return (net of expenses) at least equal to the actuarial rate of return as determined by the Chief Actuary of Canada; and
  
• Relative Performance: Achieving a return exceeding the Policy Benchmark return by 0.5% (with a minimum value-added component equal to expenses).

Accountability and Reporting

PSP Investments is governed by a twelve member Board of Directors. The Board of Directors is accountable to Parliament through the President of the Treasury Board, who is responsible for the PSP Investments’ legislation and is required to table its annual report in Parliament. PSP Investments is required to provide quarterly financial statements and the annual report to the Ministers responsible for the plans. The President and CEO and the Chair also meet annually with the Pension Advisory Committee.

Additional information about the mandate of PSP Investments, the role of the Board of Directors and key policies can be found in the Public Sector Pension Investment Board 2008 Annual Report published on PSP Investments’ Web site: www.investpsp.ca.

Investment Policies

Investment decisions are governed by PSP Investments’ Statement of Investment Policies, Standards and Procedures (SIP&P). The Board of Directors is required to review this investment policy on an annual basis.

Asset Mix Policy

The current investment policy provides for assets to be invested as follows:

	Long-term target weight	Long-term range
Equities	62%
Developed World	40%
Canadian Equity U.S. Large Cap Equity EAFE Large Cap Equity	30% 5% 5%	24-36% 4-6% 4-6%
Small Cap	5%	3-9%
Emerging Markets	7%	6-8%
Private Equity	10%	5-15%
Nominal Fixed Income	15%
Cash & Cash Equivalent	2%	0-4%
World Government Bonds	5%	3-7%
Canadian Fixed Income	8%	4-12%
Real Return Assets	23%
World Inflation-Linked Bonds	5%	3-7%
Real Estate	10%	5-15%
Infrastructure	8%	5-11%

By the end of the fiscal year 2008, most of the asset classes were in line with their target weights as described in the SIP&P, with the exception of underweight in Developed World Equity (Canadian Equity, US Large Cap Equity, EAFE Large Cap Equity), and Infrastructure compensated by overweight in the Private Equity, the Nominal Fixed income (Cash equivalents, World Government Bonds, Canadian Fixed income) and the Real Return Assets (World Inflation-Linked Bonds, Real Estate).

In addition to the different asset classes outlined in the asset mix policy, PSP Investments employs a number of absolute return strategies, consisting of derivative financial products to enhance returns by changing the investment asset mix, enhancing equity and fixed income portfolio returns and managing foreign currency exposures.

Active Investment Strategy

PSP Investments has an active management strategy designed to add value to the Policy Portfolio, in accordance with a risk budget, approved by the Board, which management can allocate to active strategies. Within this framework, the goal is to optimize the “roster” of active strategies, in order to meet the value-added objectives set out above, under the “Investment Objectives” heading.

Active management activities involve both internal and external managers and are not limited to the asset classes of the Policy Portfolio. They include mandates in other spheres, such as currency management and tactical asset-allocation across countries and asset classes.

A critical aspect of the revised asset-mix policy and active-management strategy is PSP Investments' focus on measuring and managing investment risk, intelligently and efficiently, in the quest for superior investment performance.

The diversification benefits of investment in different asset classes and investment styles are also quantified as are credit risks incurred in both public and private market investments. By following the risk-management process, PSP Investments is able to optimize its investment structure with a view to maximizing returns for a given level of risk.

2007-2008 Results

Net Assets and Other Accounts Available for Benefits

Net assets and other accounts available for benefits increased by $616 million from the previous year, to $14,821 million at March 31, 2008. The reason for the increase is shown in the Statement of Changes in Net Assets and other Accounts Available for Benefits.

As indicated on this Statement, the main reasons for the increase of $616 million are:

• Interest earned on the RCMP Superannuation Account of $833 million; plus
• Contributions received of $323 million; less
• Losses on investments managed by PSP Investments of $9 million; less
• Benefits paid of $488 million; less,
• Refunds and transfers of $24 million.

Net Assets and Other Accounts Available for Benefits are valued at fair market value.

Accrued Pension Benefits

Accrued Pension Benefits increased by $782 million to $13,438 million at March 31, 2008. The reason for the increase is shown on the Statement of Changes in Accrued Pension Benefits.

As indicated on this Statement, this increase reflects:

• The interest incurred on accrued pension benefits of $888 million; plus
• Additional benefits earned by members during the year of $317 million; plus
• Changes in actuarial assumptions of $104 million; plus
• Experience gains of $9 million; less
• Benefits paid of $488 million; less,
• Refunds and transfers $24 million.

Accrued pension benefits are based on an actuarial valuation which is performed every three years by the plan’s actuary: the Office of the Superintendent of Financial Institutions. This valuation is updated annually for the purpose of preparing the financial statements.

Excess of Actuarial Value of Net Assets and Other Accounts Available for benefits over Accrued Pension Benefits

The Excess of Actuarial Value of Net Assets and Other Accounts available for benefits over Accrued Pension Benefits, as of March 31, 2008, was $1,365 million, representing an increase of $59 million over the previous year. The excess is calculated by deducting the accrued pension benefits from the actuarial value of net assets available for benefits.

The reason for the increase is shown on the Statement of Changes in Excess of Actuarial Value of Net Assets and Other Accounts available for benefits over Accrued Pension Benefits. This Statement indicates that the increase is due to an increase in the actuarial value of net assets and other accounts available for benefits of $841 million, offset by an increase in accrued pension benefits of $782 million.

Interest on RCMP Superannuation Account

The RCMP Superannuation Account earned $833 million in interest in 2007-2008, representing a 7. 1% return. In 2006-2007, the RCMP Superannuation Account earned $834 million. This slight decrease is a result of lower interest rates through 2007-2008 compared to 2006-2007.

Earnings on Investments Managed by PSP Investments

Investments managed by PSP Investments lost $9 million in 2007-2008. This includes the current year change in fair value of investments of $(198) million, interest and dividends income of $80 million, and net realized gains of $109 million.

This result represents a total return on investment of (0.3)%. This represents a 2.6% return on Canadian Equities; a (21.3)% return on US Large Cap; a (12.9)% return on EAFE Large Cap; a (23.0)% return on Small Cap Developed World; a 7.2% return on Emerging Markets; a 21.9% return on Real Estate; a 10.1% return on Private Equity; a 5.9% return on Canadian Fixed Income; a 6.6% return on World Government Bonds; a 6.1% return on World Inflation-linked Bonds; a 3.9% return on Cash Equivalents; and a 3.8% return on Infrastructure. The return on investments managed by PSP Investments was slightly less than the overall benchmark return of 1.2%. These returns compare to the investment gain of $251 million in 2006-2007, representing a total gain on investment of 11.3%.

Since PSP Investments commenced operations on April 1, 2000, the investments have earned a cumulative net investment gain of $750 million on total transfers of $2,066 million, resulting in cumulative annualized four-year total return of 9.3%.

PSP Investment Performance

The graph below illustrates the rates of return on the consolidated pension plans since PSP Investments’ inception.

The Above Chart shows Rates of Return on Consolidated Pension Plan Account (by fiscal year)

• Fiscal year 2001: - 3.8 percent
• Fiscal year 2002: - 2.7 percent
• Fiscal year 2003: 13.5 percent
• Fiscal year 2004: 26.1 percent
• Fiscal year 2005: 7.9 percent
• Fiscal year 2006: 19.1 percent
• Fiscal year 2007: 11.3 percent
• Fiscal yeaar 2008: - 0.3 percent

Source: Public Sector Pension Investment Board

Contributions

In 2007/2008, $323 million was paid into the Plan, of which members contributed $98 million and the employer $225 million. Schedule II presents the number of Plan contributors as of March 31, 2007 and 2008.

The graph below illustrates the contributions made by the Members and the Employer, as a percentage of the total contributions.

Contributions (2007/2008 - current and elective service)

• Member Share 30 percent
• Employer Share 70 percent

Source: Royal Canadian Mounted Police

Benefits

Benefits paid increased to $488 million in 2007-2008, compared to $451 million in 2006-2007. This increase of $37 million reflects a net increase of 627 in the number of annuitants, as well as indexing increases of 2.3% that came into effect on January 1, 2007 and another 1.8% on January 1, 2008 respectively. Schedule II summarizes the number of annuitants as of March 31, 2007 and 2008, and the number of other benefits paid during the year ended March 31, 2007 and 2008.

Actuarial adjustments

During 2007-2008 and 2006-2007, the Government of Canada did not withdraw any amounts from the RCMP Superannuation Account. At March 31, 2008, the Excess of Actuarial Value of Net Assets and Other Accounts Available for Benefits over Accrued Pension Benefits in the RCMP Superannuation Account was $1,365 million.

Administrative expenses

Administrative expenses totaled $19.0 million in 2007-2008, compared to $12.2 million in 2006-2007. The total expenses are comprised of expenses incurred by the RCMP ($2.1 million in 2007-2008 versus $2.4 million in 2006-2007); Morneau Sobeco ($6.4 million in 2007-2008 versus $2.7 million in 2006-2007); PWGSC ($0.7 million in 2007-2008 versus $0.1 million in 2006-2007); PSP Investments ($9.5 million in 2007-2008 versus $6.8 million in 2006-2007); and OSFI ($0.3 million in 2007-2008 versus $0.2 million in 2006-2007). These expenses were directly related to administration of the Pension Plan.

In 2007-2008, overall RCMP expenses increased from 2006-2007 as a result of:

• The increase in Morneau Sobeco's administration costs resulted from the retro-active billing of outsourcer costs from prior periods and change request, to respond to work out of scope of the actual service level agreement;
  
• The increase in PWGSC administration costs from the use of PWGSC resources in the feasibility study to determine if the future requirements of the Plan could be met by the solution currently being developed by PWGSC Government of Canada Pension Modernization Project (GCPMP).
  
• PSP Investments - An increase in investment expenses as a result of shifts to more actively manage the growing assets under PSP Investments’ portfolio. Actively managed assets entail considerably higher expenses than a passive mandate. Although active assets are generally more expensive to manage, they offer the potential of higher returns.

The administrative expenses are detailed in note 14 of the financial statements.

Financial Statements

ROYAL CANADIAN MOUNTED POLICE PENSION PLAN

Year ended March 31, 2008

ROYAL CANADIAN MOUNTED POLICE PENSION PLAN

Management Responsibility for Financial Statements

Responsibility for the integrity and objectivity of the financial statements of the Royale Canadian Mounted Police (RCMP) Pension Plan rests with the Management of the RCMP.

The financial statements of the Royal Canadian Mounted Police Pension Plan for the year ended March, 2008, have been prepared in accordance with the accounting policies set out in Note 2 of the of the financial statements which are based on Canadian generally accepted accounting principles. The presentations and results using the stated accounting policies do not result in any significant differences from Canadian generally accepted accounting principles. The financial statements include management<s best estimates and judgements 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 Superannuation Act and regulations as well as the Financial Administrationc Act and regulations.

Additional information, as required, is obtained from the Public Sector Pension Investment Board, The Board maintains its own records and systems of internal control to account for the funds managed on behalf of the RCMP Pension Plan in accordance with the Public Sector Pension Investment Board Act and regulations.

These statements have been audited by the Auditor General of Canada, the independent auditor for the Government of Canada.

Approved by:

 

 

 

 

---

AUDITOR'S REPORT

To the Minister of Public Safety

I have audited the statement of net assets and other accounts available for benefits, of accrued pension benefits and of excess of actuarial value of net assets and other accounts available for benefits over accrued pension benefits of the Royal Canadian Mounted Police Pension Plan as at March 31, 2008 and the statements of changes in net assets and other accounts available for benefits, changes in accrued pension benefits and changes in excess of actuarial value or net assets and other accounts available for benefits over accrued pension benefits for the year then ended, These financial statements are the responsibility of the Plan's management. My responsibility is to expresss an opinion on these financial statements based on my audit.

I conducted my audit in accordance with Canadian generally accepted auditing standards. Those standards require that I plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.

In my opinion, these financial statements present fairly, in all material respects, the net assets and other accounts available for benefits, the accrued pension benefits and the excess of actuarial value of net assets and other accounts available for benefits over accrued pension benefits of the Plan as March 31, 2008 and the changes in net assets and other accounts available for benefits, changes in accrued pension benefits and changes in excess of actuarial value of net assets and other accounts available for benefits over accrued pension benefits for the year then ended in accordance with Canadian generally accepted accounting principles.

Further , in my opinion, the transactions of the Plan that have come to my notice during my audit of the financial statements have, in all significant respects, been in accordance with the Royal Canadian Mounted Police Supperannuation Act and regulations, the Public Sector Pension Investment Board Act and its by-laws.

Douglas G. Timmins, CA
Assistant Auditor General
for the Auditor General of Canada

Ottawa, Canada
March 4, 2009

---

Statement of Net Assets and Other Accounts Available for Benefits, OF Accrued Pension Benefits and Of Excess of Actuarial Value of Net Assets and Other Accounts Available for Benefits over Accrued Pension Benefits

As at March 31

	2008	2007
	($ millions)
Net Assets and Other Accounts Available for Benefits
Assets
RCMP Pension Fund Account (note 3)	11	11
Investments (note4) Investment-related assets (note 4)	3,020 167	2,579 139
Contributions receivable—post-March 31, 2000 service (note5)	15	14
Other assets	1	1
	3,214	2,744
Liabilities
Accounts payable	1	3
Investment–related liabilities (note 4)	396	190
Due to Public Service Pension Plan (note 6)	4	1
Net Assets	2,813	2,550
Other Accounts
RCMP Superannuation Account (note 3)	11,989	11,641
Contributions receivable—pre-April 1, 2000 service (note5)	19	14
Net Assets and Other Accounts Available for Benefits	14,821	14,205
Actuarial asset value adjustment (note8)	(18)	(243)
Actuarial Value of Net Assets and Other Accounts Available for Benefits	14,803	13,962
Accrued Pension Benefits (note8)	13,438	12,656
Excess of Actuarial Value of Net Assets and Other Accounts Available for Benefits over Accrued Pension Benefits (note9)	1,365	1,306

Contingency and subsequent events (notes 18 & 19)
The accompanying notes are an integral part of these financial statements.

Statement of Changes in Net Assets and Other Accounts Available for Benefits

Year ended March 31

		2008	2007
		($ millions)
Net Assets and Other Accounts Available for Benefits, Beginning of Year		14,205	13,298
Increase in Net Assets and Other Accounts Available for Benefits
Interest income from the RCMP Superannuation Account (note 3)		833	834
Contributions (note 10)		323	301
Investment income before net unrealized gains and losses (note11)		189	234
Current year change in fair value of investments and currency (note 11)		(199)	17
Transfers from other pension funds		1	2
Total Increase in Net Assets and Other Accounts Available for Benefits		1,147	1,388
Decrease in Net Assets and Other Accounts Available for Benefits
Benefits paid		488	451
Refunds and transfers (note13)		24	18
Administrative expenses (note14)		19	12
Total Decrease in Net Assets and Other Accounts Available for Benefits		531	481
Increase in Net Assets and Other Accounts Available for Benefits		616	907
Net Assets and Other Accounts Available for Benefits, End of Year		14,821	14,205

The accompanying notes are an integral part of these financial statements.

Statement of Changes in Accrued Pension Benefits

Year ended March 31

	2008				2007
		($ millions)
Accrued Pension Benefits, Beginning of Year		12,656		11,583
Increase in Accrued Pension Benefits
Interest on accrued pension benefits		888		842
Benefits earned		317		291
Plan amendment		-		161
Changes in actuarial assumptions (note8)		104		106
Cost of new elections		2		3
Transfers from other pension funds		1		2
Total Increase in Accrued Pension Benefits		1,312		1, 405
Decrease in Accrued Pension Benefits
Benefits paid		488		451
Experience gains(losses)		9		(142)
Refunds and transfers (note13)		24		18
Administrative expenses included in the service cost (note 14)		9		5
Total Decrease in Accrued Pension Benefits		530		332
Net Increase in Accrued Pension Benefits		782		1,073
Accrued Pension Benefits, End of Year		13,438		12,656

The accompanying notes are an integral part of these financial statements.

Statement of Changes in Excess of Actuarial Value of Net Assets and Other Accounts Available for Benefits over Accrued Pension Benefits

Year ended March 31

	2008		2007
		($ millions)
Excess of Actuarial Value of Net Assets and Other Accounts Available for Benefits over Accrued Pension Benefits, Beginning of Year		1,306		1,515
Increase in net assets and other accounts available for benefits		616		907
Change in actuarial asset value adjustment		225		(43)
Increase in actuarial value of net assets and other accounts available for benefits		841		864
Net increase in accrued pension benefits		(782)		(1,073)
Excess of Actuarial Value of Net Assets and Other Accounts Available for Benefits over Accrued Pension Benefits, End of Year		1,365		1,306

The accompanying notes are an integral part of these financial statements.

Notes to Financial Statements

Year ended March 31, 2008

1. Description of Plan

The Royal Canadian Mounted Police Pension Plan (the “Plan”), which is governed by the Royal Canadian Mounted Police Superannuation Act (the “RCMPSA” or the “Act”), provides pension benefits to all members of the Royal Canadian Mounted Police (“RCMP”). This Act has been in effect since April 1, 1960.

The following description of the Plan is a summary only.

(a) General

The Plan is a contributory defined benefit plan covering all Regular and Civilian members of the RCMP. Membership in the Plan is compulsory for all members of the RCMP regardless of length of service.

The Government of Canada is the sole sponsor of the Plan. The Minister of Public Safety is the Minister responsible for the RCMPSA. The RCMP is responsible for the management of the Plan. Responsibility for the day-to-day administration of the Plan was outsourced to Morneau Sobeco. The Office of the Superintendent of Financial Institutions (“OSFI”) makes periodic actuarial valuations of the Plan.

Until April 1, 2000, separate market-invested funds were not set aside to provide for payment of pension benefits. Instead, transactions relating to the Plan were recorded in a RCMP Superannuation Account created by legislation in the Accounts of the Government of Canada. Pursuant to the RCMPSA as amended by the Public Sector Pension Investment Board Act, transactions relating to service subsequent to March 31, 2000, are now recorded in the RCMP Pension Fund (the “Pension Fund”), where the excess of contributions over benefits and administration costs is invested in capital markets by the Public Sector Pension Investment Board (“PSP Investments”). PSP Investments is a separate Crown corporation that started operations on April 1, 2000. Its statutory objectives are to manage the funds transferred to it in the best interests of the contributors and beneficiaries and to maximize investment returns without undue risk of loss having regard to the funding requirements of the Plan.

(b) Funding policy

The Plan is funded from members and government contributions. Plan members contributed 4.6 per cent (4.3 per cent in 2007) for the first nine months and 4.9 per cent (4.6 per cent in 2007) for the last three months of pensionable earnings up to the maximum covered by the Canada Pension Plan or Quebec Pension Plan ("CPP" or "QPP") and 8.1 per cent (7.8 per cent in 2007) for the first nine months and 8.4 per cent (8.1 per cent in 2007) for the last three months of pensionable earnings above that maximum. The government’s contribution is made monthly to provide for the cost (net of member contributions) of the benefits that have accrued in respect of that month at a rate determined by the President of the Treasury Board. The cost of the benefits is determined based on actuarial valuations, which are performed triennially.

The RCMPSA requires actuarial deficiencies found in the RCMP Pension Fund to be dealt with by transferring amounts to the Fund in equal installments over a period not exceeding 15years. It also allows excesses in the Pension Fund to be dealt with by a reduction of government and/or plan member contributions or by withdrawing amounts from the Fund.

Until April 1, 2000, a separate market invested fund was not maintained; however, the RCMPSA provides that all pension obligations arising from the Plan be met by the Government of Canada. For service that pre-dates April 1, 2000, the RCMPSA requires deficiencies found between the balance of the RCMP Superannuation Account and the actuarial liability to be reduced by increasing the Account in equal instalments over a period not exceeding 15 years. When the balance of the RCMP Superannuation Account exceeds the actuarial liability, it also allows the excess to be reduced by decreasing the Account over a period of up to 15 years.

(c) Benefits

The Plan provides pension benefits based on the number of years of pensionable service to a maximum of 35 years. The benefits are determined by a formula set out in legislation; they are not based on the financial status of the Plan. The basic benefit formula is 2 per cent per year of pensionable service times the average of the five consecutive years of highest paid service. Benefits are coordinated with the CPP and QPP, and the resulting pension reduction factor for Plan members reaching age 65 is decreasing from 0.7 per cent to 0.625 per cent over a five-year period, starting in 2008. Also, benefits are fully indexed to the increase in the Consumer Price Index.

Other benefits include survivor pensions, minimum benefits in the event of death, unreduced early retirement pensions and disability pensions. To reflect the Income Tax Act restrictions on registered pension plan benefits, separate Retirement Compensation Arrangements have been implemented to provide benefits that exceed the income tax limit. Since these arrangements are covered by separate legislation, their net assets available for benefits and accrued pension benefits are not consolidated in these financial statements; however, condensed information is presented in note 15.

(d) Income Taxes

The Plan is a registered pension plan under the Income Tax Act and, as such, is not subject to income taxes.

2. Significant accounting policies

(a) Basis of presentation

These financial statements present information on the Plan on a going concern basis. They are prepared to assist plan members and others in reviewing the activities of the Plan for the year, but they are not meant to portray the funding requirements of the Plan.

These financial statements are prepared using the accounting policies stated below, which are based on Canadian generally accepted accounting principles. The presentation and results using the stated accounting policies do not result in any significant differences from Canadian generally accepted accounting principles.

Preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the year, principally those related to the valuation of investments and the estimation of accrued pension benefits that are management’s and government’s best estimates. Actual results could differ significantly from those estimates, although at the time of their preparation, management believes the estimates and assumptions to be reasonable.

(b) Changes in accounting policies

During the year, a change in accounting policy was made to measure the fair value of market quoted securities using the bid price for long positions and the ask price for short positions. As the change in fair value arising from this valuation had no material impact, the change was done without restatement of prior periods.

In addition, all transaction costs associated with investment assets or liabilities are now recognized immediately in net income. Transaction costs incurred for the current year are presented net of investment income in Note 11. The impact of this change was not material and the change was done without restatement of prior periods. Prior to this change, transaction costs incurred were capitalized and added to the cost of investments purchased and deducted from the proceeds of investments sold.

(c) Valuation of assets and other accounts

The RCMP Superannuation Account portrays a notional portfolio of bonds and is presented at the amount at which it is carried in the Accounts of Canada.

The investments of the Plan are held and managed through PSP Investments. Investments, grouped by asset class holdings, are presented at the respective fair value of the underlying investments held in PSP Investments. Investments for each asset class are recorded as of the trade date (the date upon which the substantial risks and rewards are transferred) and are stated at fair value. Fair value is the amount of the consideration that would be agreed upon in an arm’s length transaction between knowledgeable willing parties who are under no compulsion to act.

Fair values of investments are determined as follows:

1. Cash equivalent investments are recorded at cost plus accrued interest, which approximates fair value, and are mostly comprised of cash, floating rate notes, term deposits and government short term securities.
   
2. Quoted market prices for public equities, using the bid price for long positions and the ask price for short positions, are used to determine the fair value of these investments.
   
   Unit values, reflecting the quoted market prices, using the bid price for long positions and the ask price for short positions of the underlying securities, are used to determine the fair value of pooled funds.
   
3. Private equity and infrastructure investments, where quoted market prices, using the bid price for long positions and the ask price for short positions, are not available, are fair-valued at least annually. The fair value for investments held directly is determined using acceptable industry valuation methods such as earnings multiples, price of recent investments, discounted cash flows analysis and industry benchmark valuations. In the case of investments held through a limited partnership, fair value is generally determined based on the value reported by the fund’s General Partner using acceptable industry valuation methods.
   
4. The fair value of investments in real estate is determined at least annually, using acceptable industry valuation methods, such as discounted cash flows and comparable transactions. PSP Investments may use the services of a third party appraiser to determine the fair value of real estate investments.
   
5. Fixed income securities are valued at quoted market prices using the bid price for long positions and the ask price for short positions, where available. Where quoted market prices are not available, estimated values are calculated using either an appropriate interest rate curve with a spread associated with the credit quality of the issuer or other generally accepted pricing methodologies.
6. All listed derivative financial instruments are recorded at fair value using quoted market prices with the bid price for long positions and the ask price for short positions. For derivatives traded over-the-counter (OTC), appropriate valuation techniques, such as discounted cash flows using current market yields, are used to determine fair value.
   
   Contributions receivable for past service elections made after March 31, 2000 are recorded at their estimated net present value, which approximates their fair value. Contributions receivable for past service elections made prior to April 1, 2000, that will be credited to the RCMP Superannuation Account once the member’s share is received, are also presented at their estimated net present value.
   
   The actuarial value of net assets is based on the market-related value of investments, whereby the fluctuations between the market and expected market value are deferred and recognized over a five year period within a ceiling of plus or minus 10 per cent of the market value. Market-related value of investments is used to mitigate the impact of large fluctuations in the market value of plan investments.

(d) Transaction costs

Transaction costs are incremental costs directly attributable to the acquisition or disposal of an investment. Transaction costs are expensed as incurred and recorded as a component of investment income.

(e) Income recognition

Investment income has been allocated proportionately based on asset value held by the Plan. Investment income represents realized gains and losses on the disposal of investments, accrued interest income, dividends, investment income from private market investments and the change in unrealized appreciation (depreciation) of investments held at the end of the year.

Dividend income is recognized based on the ex-dividend date. Investment income from private market investments also includes the related distributions from pooled funds, limited partnerships as well as from co-investments.

The current-year change in fair value of investments and currency is the change in unrealized appreciation (depreciation) on investments held at the end of the year.

Interest on the Royal Canadian Mounted Police Superannuation Account is recognized on an accrual basis.

(f) Contributions

Contributions for current service are recorded in the year in which the related payroll costs are incurred. Contributions for past service that are receivable over a period in excess of one year are recorded at the estimated net present value of the contributions to be received.

(g) Benefits, refunds and transfers

Benefits are accrued as pensionable service accumulates and are recognized as a reduction of accrued pension benefits and net assets and other accounts when paid. Refunds and transfers are recognized at the moment the refund or transfer occurs; until that time they are presented with the net assets and other accounts available for benefits and with the related accrued pension benefits.

(h) Translation of foreign currencies

Transactions in foreign currencies are recorded at the rates of exchange prevailing on the transaction date. Investments denominated in foreign currencies and held at year-end are translated at exchange rates in effect at the year-end date. The resulting realized and unrealized gains and losses on foreign exchange are included in investment income.

3. RCMP Superannuation Account and RCMP Pension Fund Account

The RCMP Superannuation Account is established in the Accounts of Canada pursuant to the RCMPSA. It portrays a notional portfolio of bonds and is not funded by the Government of Canada. The RCMPSA requires that this Account record transactions such as contributions, benefits paid and transfers that pertain to pre-April1, 2000 service, and that the Account be credited with interest. The Royal Canadian Mounted Police Superannuation Regulations require that the interest be credited quarterly at rates calculated as though the amounts recorded in the Account were invested quarterly in a notional portfolio of Government of Canada 20 year bonds held to maturity.

Transactions pertaining to post March 31, 2000 service are recorded in the RCMP Pension Fund through the RCMP Pension Fund Account, which is also included in the Accounts of Canada. The net amount of contributions less benefits and other payments is regularly transferred to PSP Investments for investment in capital markets. The RCMP Pension Fund Account is only a flow-through account, and, as such, does not earn interest. At March 31, the balance in the RCMP Pension Fund Account represents amounts of net contributions in transit awaiting imminent transfer to PSP Investments.

4. Investments

(a) Investment Portfolio

At March31, the portfolio of investments held through PSP Investments, before allocating the effect of derivative contracts and investment related assets and liabilities, is as follows:

	2008		2007
	Fair Value	Cost	Fair Value	Cost
			($ millions)
Developed World Equity
Canada Equity	535	493	470	375
US Large Cap Equity	109	124	156	141
EAFE Large Cap Equity	132	141	124	101
Small Cap Developed World Equity	102	119	161	147
Emerging Markets Equity	133	118	137	111
Private Equity	293	283	120	120
Nominal Fixed Income
Cash Equivalents	218	218	165	167
World Government Bonds	128	130	127	130
Canadian Fixed Income	592	621	614	616
Real Return Assets
World Inflation-linked Bonds	10	10	22	20
Real Estate	379	301	294	260
Infrastructure	113	110	35	33
Absolute Return	276	279	154	150
INVESTMENTS	3,020	2,947	2,579	2,371
Investment-Related Assets
Amounts receivable from pending trades	127	127	118	115
Derivative-related receivables	40	6	21	5
Total Investment Related Assets	167	133	139	120
Investment-Related Liabilities
Amounts payable from pending trades	(142)	(142)	(101)	(101)
Securities sold short	(52)	(53)	(39)	(39)
Derivative-related payables	(92)	(4)	(14)	(4)
Capital debt financing	(110)	(110)	(36)	(36)
Total investment-related liabilities	(396)	(309)	(190)	(180)
Net Investments	2,791	2,771	2,528	2,311
Comparative figures have been reclassified to conform to the current year’s presentation.

As at March 31, 2008, the Plan holds $141 million of third-party or non-bank sponsored asset backed commercial paper (“ABCP”). The ABCP last traded in the active market in mid-August 2007 and currently there are no market quotations available for the ABCP.

The investment manager, PSP Investments, has been participating in a restructuring process with other investors under the Montreal Accord. The proposed restructuring plan approved by the ABCP investors in April 2008 will extend the maturity of the ABCP to provide for a maturity similar to that of the underlying assets (maturity ranges from 5 to 8.5 years); pool certain series of ABCP; mitigate the risk of margin call obligations and support the liquidity needs of certain ABCP investors.

A valuation technique was adopted by the investment manager to determine the fair value of ABCP holdings as at March 31, 2008. The valuation methodology attempts to value the ABCP under a number of scenarios and then applies a weighting factor to each of these based on probability of occurrence. The principal scenarios considered were one under a successful restructuring and another under which a failure to restructure occurs.

Under scenarios in which the restructuring process is incomplete or inconclusive (failure to restructure scenario), the ABCP is assessed under two separate contexts; one being an orderly resolution of the assets and the second being a complete liquidation scenario. Under the failure to restructure scenario, the two separate contexts were fair valued. The probability of this scenario occurring was believed to be unlikely and was consequently assigned a low probability of occurrence.

The best estimate of the fair value of the Plan’s ABCP as at March 31, 2008, is equal to approximately $109 million, representing a write-down of approximately $32 million. The ABCPs are reported as Canadian fixed income under the investment portfolio.

The fair value was established as a function of the information available as at March 31, 2008, which includes certain assumptions used in the valuation model such as interest rate spreads, assumed credit rating of restructured notes, expected returns and maturity of restructured notes. Varying certain key elements of the valuation technique will have an impact on the write-down on ABCP as at March 31, 2008. For example, increasing interest rate spreads by 50 bps will increase the provision by $5 million for the Plan; extending the maturity term by one year would increase the provision by $4 million for the Plan. The fair value of ABCP may change in future periods as a result of fluctuations in the major elements of the valuation methodology.

(b) Derivative financial instruments

Derivative financial instruments are financial contracts, the value of which is derived from changes in underlying assets, interest or exchange rates. Derivative financial instruments are used to increase returns or to replicate investments synthetically. Derivatives are also used to reduce the risk associated with existing investments.

Notional values are not recorded as assets and liabilities as they represent the face amount of the contract to which a rate or price is applied in order to calculate the exchange of cash flows.

Notional values do not represent the potential gain or loss associated with the market or credit risk of such transactions. Rather, it serves as the basis upon which the cash flows and the fair value of the contracts are determined.

Credit default derivatives are written and, hence, indirectly guarantees the underlying reference obligations. The maximum potential exposure is the notional amount of written credit default derivatives as shown in the table below. No payments related to written credit default derivatives have been made to date.

The following table summarizes the derivatives portfolio as at March 31:

	2008		2007
INVESTMENTS	Notional Value	Fair Value	Notional Value	Fair Value
	($ millions)		($ millions)
Equity and Commodity Derivatives
Futures	63	1	120		-
Swaps	386	(3)	350		4
Others	30	1	77		5
Currency Derivatives
Forwards	1,028	(13)	780		-
Swaps	60	(5)	50		(1)
Options	190	-	71		1
Interest Rate Derivatives
Bond forwards	198	-	149		-
Swaps	1,151	2	318		(1)
Others	252	-	111		-
Credit Default Derivatives
Swaps	101	(35)	108		(1)
Total	3,459	(52)	2,134		7

The fair value of derivative contracts, as at March 31, is represented by:

($ millions)	2008	2007
Derivative-related receivables	40	21
Derivative-related payables	(92)	(14)
Total	(52)	7

The term to maturity based on notional value for the derivatives, as at March 31, is as follows:

($ millions)	2008	2007
Under 1 year	2,477	1,695
1 to 5 years	841	324
Over 5 years	141	115
Total	3,459	2,134

c) Investment Asset Mix

PSP Investments, as the investment manager, has established investment policies, standards and procedures that determine the manner in which the assets shall be invested. Investments are classified by asset mix category based on the economic intent of the investment strategies of the underlying assets. Differences between the actual asset mix and the policy portfolio targets are due principally to target weights of certain asset classes, which have yet to be attained. For instance, the infrastructure asset class has a policy portfolio target weight of 8.0 per cent and an actual asset weight of only 3.4 per cent. This is offset by an overweight in the Canadian fixed income asset class.

The net investments, as at March 31, are as follows:

		2008								2007
Asset Class	Fair Value				Policy Portfolio			Fair Value						Policy Portfolio
	($ millions)		Per cent (%)						($ millions)			Per cent (%)
Developed World Equity
Canadian Equity	826		29.6	30.0			746				29.5		30.0
US Large Cap Equity	127		4.5	5.0			180				7.1		5.0
EAFE Large Cap Equity	131		4.7	5.0			124				4.9		5.0
Small Cap Developed World Equity
Private Equity	138		5.0	5.0			212				8.4		7.0
Emerging Markets Equity	195		7.0	7.0			181				7.1		7.0
Private Equity	284		10.2	10.0			121				4.8		8.0
Nominal Fixed Income
Cash Equivalents	111		4.0	2.0			28				1.1		2.0
World Government Bonds	161		5.8	5.0			120				4.8		5.0
Canadian Fixed Income	346		12.4	8.0			392				15.5		8.0
Real Return Assets
World Inflation-linked Bonds	159		5.7	5.0			124				4.9		5.0
Real Estate	289		10.3	10.0			259				10.3		10.0
Infrastructure	96		3.4	8.0			35				1.4		8.0
Absolute Return	(72)		(2.6)	n.a.			6				0.2		n.a.
Net investments	2,791		100.0	100.0			2,528				100.0		100.0

In addition to the different asset classes outlined in the asset mix policy, a number of absolute return strategies are employed, consisting of derivative financial products such as those in Note 4 (b), to enhance returns by changing the investment asset mix, enhancing equity and fixed income portfolio returns and managing foreign currency exposures.

(d) Investment performance

Portfolio and benchmark returns, of the investment portfolio held through PSP Investments for the year ended March 31, are as follows:

	2008		2007
	Portfolio Returns	Benchmark Returns	Portfolio Returns	Benchmark Returns
	Per cent (%)		Per cent (%)
Developed World Equity
Canadian Equity	2.6	3.2	14.3	14.2
US Large Cap Equity	(21.3)	(15.6)	8.7	10.6
EAFE Large Cap Equity	(12.9)	(13.5)	16.6	18.9
Small Cap Developed World Equity	(23.0)	(20.5)	5.5	6.1
Emerging Markets Equity	7.2	7.9	18.8	19.3
Private Equity	10.1	3.7	(0.6)	n.a
Nominal Fixed Income
Cash Equivalents	3.9	4.6	4.2	4.2
World Government Bonds	6.6	6.7	(1.5)	(1.5)
Canadian Fixed Income	5.9	5.8	5.4	5.5
Real Return Assets
World Inflation-linked Bonds	6.1	6.0	(1.4)	(1.6)
Real Estate	21.9	7.6	36.5	6.7
Infrastructure	3.8	n.a.	5.5	n.a.
Total Return	(0.3)	1.2	11.3	10.1

Comparative figures have been reclassified to conform to the current year’s presentation.

Returns have been calculated in accordance with the performance calculation methodology recommended by the CFA Institute.

The internal rate of return methodology is used to calculate the returns for the real estate, private equity and infrastructure asset classes for the years ended March 31, 2008 and March 31, 2007.

Total benchmark return aggregates the asset class benchmark returns according to the weights under the actual asset mix at the beginning of every fiscal year. The actual portfolio cash flows are reflected in the benchmark to neutralize the asset allocation effect. The return of the infrastructure asset class is not being measured against any benchmark during the current ramp-up period. However, for purposes of calculating the total benchmark returns for 2008 and 2007, the actual infrastructure portfolio returns of 3.8 per cent and 5.5 per cent, respectively, are used. A benchmark return has been established for the private equity asset class effective April 1, 2007. In the prior fiscal year, the actual portfolio returns for the private equity class were used as the measure for total benchmark return.

(e) Investment Risk Management

Investment risk management is a central part of the strategic management of the investment portfolio. It is done through a continuous process whereby PSP Investments, as the investment manager, methodically addresses the risks related to its various investment activities with the goal of achieving a maximum rate of return without undue risk of loss and a sustained benefit within each activity and across the total portfolio.

Investment risk management is achieved through investment’s policy, guidelines and procedures established by the investment manager, which address such matters as the establishment of a risk budget and risk controls, concentration limits and the risk of valuation models. A risk governance structure also ensures that appropriate objectives are pursued and achieved in line with the fulfillment of PSP Investments’ legislated mandate.

(f) Foreign currency risk

Investments are exposed to currency risk through holdings of securities, units in pooled funds and units in limited partnerships of non-Canadian assets. Fluctuations in the relative value of the Canadian dollar against these foreign currencies can result in a positive or a negative effect on the fair value of the investments. To mitigate this risk, positions in foreign currencies may be taken through foreign exchange forward contracts.

The underlying net foreign currency exposure, as at March31, was as follows:

			2008		2007
Currency			Fair value	% of total	Fair value	% of total
(in Canadian $)			($ millions)		($ millions)
US Dollar			417	52.8%	452	53.7%
Euro			164	20.8%	147	17.5%
British Pound			66	8.3%	58	6.9%
Yen			46	5.8%	51	6.1%
Brazilian Real			31	3.9%	20	2.3%
Others			67	8.4%	113	13.5%
Total			791	100.0%	841	100.0%
		Comparative figures have been reclassified to conform to the current year’s presentation.

PSP Investments and its subsidiaries also made commitments, denominated in foreign currencies, in real estate, private equity, infrastructure and public market investments for an amount of $513 million ($380 million US, €73 million Euros and £3 million GBP) which are not included in the foreign currency exposure table above.

(g) Credit risk

The investments are exposed to the risk that a debt securities issuer could be unable to meet its financial obligation or that a derivative counterparty could default or become insolvent.

As at March 31, 2008, the Plan’s highest concentration of credit risk is with the Government of Canada through holdings of $0.2 billion of Government of Canada issued securities. In order to minimize derivative contract credit risk, PSP Investments deals only with counterparties that are major financial institutions with a minimum credit rating of “A” as at the trade date, as supported by a recognized credit rating agency by utilizing an internal credit-limit monitoring process, as well as through the use of credit mitigation techniques such as master-netting arrangements (which provide for certain rights of offset) and obtaining collateral, including the use of credit-support annexes, where appropriate.

(h) Market risk

Market risk is the risk that the value of an investment will fluctuate as a result of changes in market prices, whether those changes are caused by factors specific to the individual investment, volatility in share and commodity prices, interest rate, foreign exchange or other risk variables affecting all securities traded in the market. PSP Investments uses a diversification strategy to mitigate this risk whereby it invests in a diversified portfolio of investments based on established investment policies and criteria. Derivative financial instruments, traded either on exchanges or over the counter, are also used to mitigate the impact of market risk.

Market risk is measured using the method known as Value at Risk (VaR). VaR is the maximum loss not exceeded with a given probability defined as the confidence level, over a given period of time. PSP Investments has chosen a yearly 95% confidence interval to measure and report VaR. Generally, changes in VaR between reporting periods are due to changes in the level of exposure, volatilities and/or correlations among asset classes. Although VaR is a widely-accepted risk measure, it must be complemented by other risk measures. PSP Investments therefore uses stress testing and scenario analysis to examine the impact on financial results of abnormally large movements in risk factors.

(i) Interest rate risk

Interest rate risk refers to the effect on the market value of investments due to fluctuations in interest rates. Changes in interest rates will directly affect the fair value of investments.

As at March 31, 2008, the fixed income asset class was managed with an average duration of 6.1 years (5.7 years in 2007). An increase of 1 per cent in interest rates would result in a decline in the value of the fixed income securities of 6.1 per cent, or $21 million.

The terms to maturity of the bonds held in the Canadian fixed income asset class, as at March 31, 2008, are as follows:

($ millions)	Within 1 Year	1 to 5 Years	6 to 10 Years	Over 10 Years	2008 Total	2007 Total
Government of Canada bonds	-	80	18	30	128	153
Provincial and Territorial bonds	4	23	27	42	96	106
Municipal bonds	-	6	3	-	9	6
Corporate bonds	8	42	32	34	116	127
Total	12	151	80	106	349	392

(j) Liquidity risk

Liquidity risk corresponds to the ability to meet financial obligations. The cash position is monitored on a regular basis and liquidity requirements are expected to be minimal. In general, investments in cash and cash equivalents, debt and public equities are expected to be highly liquid, as they will be invested in securities that will either be publicly traded on a recognized exchange or traded over-the-counter. As at March 31, 2008, the ability to raise additional capital exists through the use of PSP Investments’ capital debt program.

(k) Securities lending

Investments are used to participate in securities lending programs whereby securities are lent in order to enhance portfolio returns. Any such securities lending requires collateral in cash, high quality debt instruments or shares securities with a fair value equal to no less than 102 per cent of the value of the securities lent. As at March 31, 2008, securities with an estimated fair value of $365 million ($295 million in 2007) were loaned out, while securities contractually receivable as collateral had an estimated fair value of $379 million ($308 million in 2007).

(l) Securities collateral

Securities with a fair value of $29 million have been deposited or pledged as collateral ($7 million in 2007) with various financial institutions. Securities with fair value of $2 million ($33 million in 2007) have been received from various financial institutions as collateral.

(m) Private market investments

The real estate asset class is comprised of investments, which are held through either PSP Investments or its wholly owned subsidiaries and managed by general partners or external advisors. The underlying investments comprise a diversified portfolio of income-producing properties, third party loans and public and private funds. The real estate asset class is accounted for in the investment portfolio net of all financings. The fair market value of financings in the real estate portfolio generally will not exceed 50 per cent of the gross fair market value of the portfolio. As at March 31, 2008, the total amount of financing included in the real estate portfolio for direct investments controlled by PSP Investments is approximately $200 million.

The private equity asset class is comprised of interests in limited partnerships and in funds, which are managed by general partners and investments, which are held through PSP Investments or its wholly owned subsidiaries. The underlying investments represent equity ownerships or investments with the risk and return characteristics of equity. As at March 31, 2008, the total amount of financing included in the private equity portfolio for direct investments controlled by PSP Investments is nil.

The infrastructure asset class is comprised of investments, which are held through either PSP Investments or its wholly owned subsidiaries and managed by general partners or external advisors. The underlying investments comprise a diversified portfolio of infrastructure assets and publicly-traded securities. As at March 31, 2008, the total amount of financing included in the infrastructure portfolio for direct investments controlled by PSP Investments is approximately $30 million.

Investment management and performance incentive fees are generally incurred for the above private market investments and are paid either by the investment directly, through capital contributions from PSP Investments or offset against distributions received from the investment. Investment management fees in private market investments generally vary between 0.2 per cent and 5.5 per cent of the total invested amount. For the year ended March 31, 2008, investment management fees of $8 million ($4 million in 2007) were recorded as part of the cost of the private market investments or against investment income.

The carrying values of the majority of private market investments, as disclosed in note 2 c) iii) are reviewed annually and any resulting adjustments are reflected as unrealized gains or losses in investment income.

5. Contributions receivable

	2008	2007
	($ millions)
Pre-April 1, 2000, service
Member contributions for past service elections	10	7
Employer’s share of contributions for past service elections	9	7
	19	14
Post-March 31, 2000, service
Member contributions for past service elections	5	4
Employer’s share of contributions for past service elections	10	10
	15	14
Total	34	28

6. Due to Public Service Pension Plan

The costs of operation of PSP Investments are charged to the four plans for which PSPInvestments provides investment services, namely, the Public Service pension plan, the Canadian Forces pension plan, the Reserve Force pension plan and the Royal Canadian Mounted Police pension plan. The direct costs of investment activities, such as external investment management fees and custodial fees, are allocated to each plan and their operating expenses are allocated on a quarterly basis, based upon the asset value of each plan’s investments under management.

In 2008, 7.2 per cent of the operating expenses were allocated to the Plan (7.2 per cent in 2007). PSP Investments initially charges all the expenses to the Public Service pension plan, which then charges the Plan on a quarterly basis.

7. PSP Capital Inc.

As of March 31, 2008, PSP Capital Inc., a wholly-owned subsidiary of PSP Investments, has $1,551 million ($503 million in 2007) of short-term promissory notes outstanding with maturity dates within 32 to 364 days of issuance, of which $110 million ($36 million in 2007) has been allocated to the Plan and included in Note 4 (a) as investment-related liability. The maximum authorized by the Board of the Directors of PSP Investments for the short term and medium term notes is $3 billion and $1 billion, respectively. As at March 31, 2008, there are no medium term notes issued and outstanding. The capital raised was used primarily to finance real estate and infrastructure investments and is unconditionally and irrevocably guaranteed by PSP Investments. The operating expenses incurred by PSP Capital Inc. were allocated to the Plan and include interest expense on the short-term promissory notes of $4 million ($1 million in 2007).

8. Accrued pension benefits

(a) Present value of accrued pension benefits

The present value of accrued pension benefits is calculated actuarially by the Chief Actuary of the Office of the Superintendent of Financial Institutions (OSFI) using the projected benefit method prorated on service. Actuarial valuations are performed triennially for funding purposes and are updated annually by the Chief Actuary of OSFI for accounting purposes, using the government’s best estimate assumptions. The information in these financial statements is based on this annual valuation. The Chief Actuary of the Office of the Superintendent of Financial Institutions conducted the most recent actuarial valuation of the Plan for funding purposes as of March 31, 2005 and it was tabled in Parliament on October 30, 2006. However, the accounting actuarial valuation has been updated as at March 31, 2008 using the demographic assumptions and base populations of the funding actuarial valuation as at March 31, 2005.

The assumptions used in determining the actuarial value of accrued pension benefits were developed with reference to short-term forecasts and expected long-term market conditions. Many assumptions are required in the actuarial valuation process, including estimates of future inflation, interest rates, expected return on investments, general wage increases, workforce composition, retirement rates, and mortality rates.

The assumptions for the long-term rate of inflation and long-term general wage increase used in the accounting valuation are 2.0 per cent and 2.9 per cent respectively (2.0 per cent and 2.9 per cent in 2007). The discount rates used to value the liabilities at March31, 2008, and the corresponding assumptions used in the cost of current service and in the interest expense are as follows:

	2008			2007
	Liability valuation		Expense valuation	Liability valuation		Expense valuation
	Short-term	Long-term		Short-term	Long-term
	Per cent (%)			Per cent (%)
Expected rate of return on pension investments	5.9	6.3	6.0	6.0	6.3	6.2
Expected weighted average of long-term bond rates	7.1	5.0	7.3	7.3	5.0	7.6

b) Actuarial asset value adjustment

The actuarial value of net assets available for benefits has been determined from short-term forecasts consistent with the assumptions underlying the valuation of the accrued pension benefits. The actuarial asset value adjustment represents the difference between investments valued at fair value and investments valued at market-related values.

9. Excess of actuarial value of net assets and other accounts available for benefits over accrued pension benefits

For funding purposes, the actuarial value of net assets and other accounts available for benefits and the accrued pension benefits are tracked separately for service prior to April 1, 2000 and after March31,2000. Based on the accounting assumptions used for these financial statements, the breakdown as at March 31, 2008 is as follows:

	Pre- April 1, 2000	Post- March 31, 2000
				Total
	($ millions)
Net assets and other accounts available for benefits	12,008	2,813	14,821
Actuarial asset value adjustment	–	(18)	(18)
Actuarial value of net assets and other accounts available for benefits	12,008	2,795	14,803
Accrued pension benefits	(10,714)	(2,724)	(13,438)
Excess of actuarial value of net assets and other accounts available for benefits over accrued pension benefits	1,294	71	1,365

10. Contributions

	2008	2007
	($ millions)
From employees	98	87
From employer	225	214
Total	323	301

During the year, employees contributed approximately 30percent (29percent in 2007) of the total contributions made.

11. Investment income

(a) Investment income

Investment income, for the year ended March 31, before allocating net realized and unrealized gains and losses on investments, is as follows:

	2008	2007
	($ millions)
Interest income	48	33
Dividend income	26	22
Other income	8	19
Transaction costs	(2)	-
	80	74
Net realized gains	109	160
Investment income before net unrealized gains and losses	189	234
Net unrealized gains and losses	(199)	17
Investment (loss) income	(10)	251

(b) Investment Income by Asset Mix

Investment income by asset mix, for the year ended March 31, after allocating net realized and unrealized gains and losses on investments, is as follows:

	2008	2007
	($ millions)
Developed World Equity
Canadian Equity	17	94
US Large Cap Equity	(33)	16
EAFE Large Cap Equity	(17)	34
Small Cap Developed World Equity	(45)	10
Emerging Markets Equity	13	28
Private Equity	19	-
Nominal Fixed Income
Cash Equivalents	4	2
World Government Bonds	12	(3)
Canadian Fixed Income	21	21
Real Return Assets
World Inflation-linked Bonds	6	(2)
Real Estate	54	47
Infrastructure	2	1
Absolute return	(63)	3
Investment (loss) income	(10)	251

Investment income includes foreign currency realized losses of $42 million ($9 million in 2007) and foreign currency unrealized losses of $27 million (foreign currency unrealized gain of $31 million in 2007).

12. Actuarial adjustment

In accordance with the legislation governing the Plan, the President of the Treasury Board is required to direct that any actuarial deficiency found in the RCMP Pension Fund be credited to the Fund in equal installments over a period not exceeding 15 years, commencing in the year in which the actuarial report is tabled in Parliament. Excesses in the Pension Fund may be dealt with by a reduction of government and/or plan member contributions or by withdrawing amounts from the Fund.

The legislation also requires that deficiencies between the balance of the RCMP Superannuation Account and the actuarial liability are eliminated by increasing the Account in equal instalments over a period not exceeding 15 years. When the balance of the RCMP Superannuation Account exceeds the actuarial liability, it also allows the excess to be reduced by decreasing the Account over a period of up to 15 years.

As a result of the March31, 2005 triennial actuarial valuation of the Royal Canadian Mounted Police Pension Plan, which was tabled in Parliament in October 2006, no adjustment was made to the RCMP Pension Fund (nil in 2007) nor to the RCMP Superannuation Account (nil in 2007).

13. Refunds and transfers

		2008	2007
	($ millions)
Pension division payments	17		12
Returns of contributions and transfer value payments	7		6
Total	24		18

14. Administrative expenses

The legislation provides for administrative expenses to be charged to the Plan. These administrative services are provided by government organizations related to the Plan and a private sector pension administration service provider, Morneau Sobeco. The administrative expenses relating to the RCMP, Public Works and Government Services Canada (PWGSC), OSFI, and Morneau Sobeco are approved annually by the Treasury Board. The administrative expenses incurred by PSP Investments are also charged to the Plan.

The RCMP, as the program manager of the Plan, provides operational support, policy interpretation, financial accounting services, and pension committee support. These costs are charged to the Plan. They include salaries and benefits, systems maintenance and development, accommodation, and other operating costs of administering the Plan within the department.

Morneau Sobeco, under a contract agreement, provides administrative services to the Plan and charges costs to the Plan on a monthly basis. Morneau Sobeco provides day to day administration services including determining the eligibility and the calculation of pension benefits, providing call centre support and information to plan members, and providing pension payroll services.

PWGSC, under a memorandum of understanding with the RCMP, charges the Plan for printing and mailing pension cheques and direct deposit stubs to pensioners.

OSFI provides actuarial valuation services and charges these costs to the Plan.
PSP Investments, as the manager of the investments of the Plan, charges Plan-related operating expenses, salaries and benefits as well as other operating expenses and external investment management fees to the Plan.

Administrative expenses consist of the following:

	2008	2007
	($ thousands)
RCMP	2,106	2,398
Morneau Sobeco	6,376	2,686
PWGSC	679	111
OSFI	335	252
Total administrative expenses included in the service cost	9,496	5,447
PSP Investments
Operating expenses	5,551	3,759
External investment management fees	4,000	3,000
Total PSP Investments	9,551	6,759
Total administrative expenses	19,047	12,206

15. Retirement Compensation Arrangement

A Retirement Compensation Arrangement (RCA) Account has been established under the authority of the Special Retirement Arrangements Act to provide supplementary pension benefits to certain RCMP members. The RCA Account provides for benefits in excess of those permitted under the Income Tax Act for registered pension plans.

Pursuant to the legislation, transactions pertaining to this arrangement such as contributions, benefits and interest credits are recorded in the RCA Account, which is maintained in the Accounts of Canada. The legislation also requires that the RCA Account be credited with interest quarterly at the same rates as those credited to the RCMP Superannuation Account. The RCA is registered with the Canada Revenue Agency (CRA) and a transfer is made annually between the RCA Account and CRA either to remit a 50 per cent refundable tax in respect of the net contributions and interest credits or to be credited a reimbursement based on the net benefit payments.

Since this arrangement is covered by separate legislation, the balance in the Account and related accrued pension benefits are not consolidated in the financial statements of the Plan. The following summarizes the financial position of the RCA Account that relates to the Plan as at March 31:

	2008	2007
	($ thousands)
Net balance and accrued pension benefits
Balance of Account
RCA Account	23,717	22,258
Refundable tax receivable	23,144	21,762
	46,861	44,020
Accrued pension benefits	22,700	20,100
Excess of the balance of the Account over the accrued pension benefits	24,161	23,920

The actuarial assumptions used to value the accrued pension benefits pertaining to the RCA Account are consistent with those used for the Plan in all respects, except that they take into consideration the impact of the refundable tax on the notional rate of return expected for the Account.

The following summarizes the changes in the RCA Account for the year:

	2008	2007
	($ thousands)
Changes in the balance of the Account
Increase
Contributions—members	190	193
Contributions—employer	1,306	961
Interest income	1,656	1,608
Increase in refundable tax receivable	1,382	1,270
	4,534	4,032
Decrease
Benefits paid	311	259
Refundable tax remittance	1,382	1,270
	1,693	1,529
Increase in the balance of the Account	2,841	2,503

Actuarial deficiencies found between the balance in the RCA Account and the actuarial liabilities are credited to the RCA Account in equal installments over a period not exceeding 15 years. As a result of the triennial valuation of March 2005, no adjustment was made to the RCA Account (nil in 2007) during the year.

16. Guarantees

PSP Investments has agreed to guarantee, as part of an investment transaction, a non-revolving term loan. As at March 31, 2008, in the event of a default, the Plan would assume the obligation up to $29 million plus interest and other related costs. PSP Investments also unconditionally and irrevocably guarantees all short-term promissory notes issued by its wholly-owned subsidiary, PSP Capital Inc.

17. Commitments

The Plan entered into a contractual agreement with Morneau Sobeco to function as the administrator of the Plan commencing April 1st, 2003. The initial term of the contract was for a five-year period, ending March 31, 2008; with the option to renew the contract for a further two-year period. On March 27, 2008 the Plan exercised the option to renew the contract for the first additional year, resulting in the commitment below:

	Firm Annual Commitment
	($ thousands)
2008-2009	5,572
	5,572

The Plan has also opted to exercise its second year option. This will allow for determination of the best option for the Plan in the future period.

PSP Investments and its subsidiaries have committed to enter into investment transactions, which will be funded over the next several years in accordance with agreed terms and conditions. As at March 31, 2008, the outstanding commitments in private equity-related, real estate–related, infrastructure-related and public market-related investments amounted to $556 million ($312 million for private equity investments, $146 million for real estate related investments, $61 million for public market investments and $37 million for infrastructure investments).

18. Contingency

The Public Sector Pension Investment Board Act, which received Royal Assent in September 1999, amended the RCMPSA to enable the Federal government to deal with excess amounts in the RCMP Superannuation Account and the RCMP Pension Fund. The legal validity of these provisions has been challenged in the Ontario Superior Court of Justice. On November 20, 2007, the Court has rendered its decision and has dismissed all the claims of the plaintiffs. Several of the plaintiffs are currently appealing this decision to the Ontario Court of Appeal. The outcome of these appeals is not determinable at this time.

19. Subsequent events

Following the approval of the ABCP restructuring plan in January 2009 by the Ontario Superior Court of Justice, the restructuring process of ABCP, as disclosed in Note 4(a), has been successfully completed and ratified.As a result of the completed restructuring, the ABCP will be converted into long-term fixed income instruments.

Subsequent to March 31, 2008, global financial markets have experienced turmoil and significant volatility. The impact of these recent market fluctuations on the portion of the Plan assets composed of market quoted securities has resulted in a negative return approximating 16% for the period up to December 31, 2008. However, the effect of the economic downturn is mitigated by the diversification of the portfolio of investments managed by PSP Investments, as disclosed in Note 4(c). Given that the Plan’s investment horizon is long-term in nature, this decrease in value is not expected to affect the long-term objective of the portfolio of investments held through PSP Investments.

The changes in the fair value of investments that have occurred subsequent to year-end will be recorded in the financial statements of 2008-2009. The Government continues to hold a statutory obligation for the payment of pension benefits, independent of the financial performance of the investment portfolio.

20. Comparative figures
Certain comparative figures have been reclassified to conform to the current-year presentation.

Schedule I - Public Accounts

ROYAL CANADIAN MOUNTED POLICE SUPERANNUATION ACCOUNT (unaudited)
	2007-2008	2006-2007
	$	$
Opening balance	11,640,608,898	11,255,480,938
RECEIPTS AND OTHER CREDITS
Contributions from members	1,181,241	1,249,063
Contributions by the Government	1,092,284	1,196,328
Transfers from other pension funds	25,237	17,060
Interest	833,400,029	833,435,836
	835,698,791	835,898,287
	12,476,307,689	12,091,379,225
PAYMENTS AND OTHER CHARGES
Annuities and allowance payments	461,615,671	432,074,532
Pension division payments	14,711,255	10,718,859
Returns of contributions	1,621	2,960
Cash termination allowances
and gratuities	58,933	2,619
Commuted value payments	2,948,174	3,286,248
Transfers to other pension funds	196,717	177,832
Interest on returns of contributions	1,419	1,491
Administrative expenses	7,594,230	4,505,786
	487,128,020	450,770,327
Closing balance	11,989,179,669	11,640,608,898

 

ROYAL CANADIAN MOUNTED POLICE PENSION FUND ACCOUNT (unaudited)
		2007-2008	2006-2007
		$	$
Opening balance		11,140,358	16,562,928
RECEIPTS AND OTHER CREDITS
Contributions from members		93,643,110	85,458,532
Contributions by the Government		221,154,465	210,996,204
Transfers from other pension funds		1,194,760	2,381,127
		315,992,335	298,835,863
PAYMENTS AND OTHER CHARGES
Annuities and allowance payments		26,400,435	18,955,636
Pension Benefit Division Act payments		2,395,629	1,457,006
Returns of contributions		86,513	108,306
Cash termination allowance and gratuities		734
Commuted value payments		3,170,600	2,279,934
Transfers to other pension funds		314,011	92,054
Interest on returns of contributions		20,577	15,740
Administrative expenses		1,901,917	941,449
		34,290,416	23,850,125
Receipts and other credits less payments and other charges		281,701,919	274,985,738
Transfers to Pension Investment Board		281,655,322	280,408,308
Closing balance		11,186,955	11,140,358

Schedule II - Plan Membership

(Unaudited)

Plan Membership
Number of Contributors
	March 31, 2008	March 31, 2007
Contributors	21,136	20,318
Number of Annuitants
	March 31, 2008	March 31, 2007
Pensioners	12,892	12,331
Surviving Children	101	113
Surviving Widows	1,489	1,400
Surviving Children over 18 attending school	71	82
Total	14,553	13,926
Number of Other Benefits Paid	April 1, 2007- March 31, 2008	April 1, 2006- March 31, 2007
Cash Termination Allowance	-	1
Minimun Death Benefit	7	2
Return of Contributions and Commuted Value	108	91
Total	115	94

Corporate

RCMP Pension Advisory Committee

Peter Martin, Chair *
Alain Seguin *
Gord Dalziel
Steve Graham
Gene Swimmer
Kim Floyd
Bill Gidley
Kevin Boisclair

* Members of the RCMP Senior Executive Committee

Investment Managers

Public Sector Pension Investment Board
www.investpsp.ca

Professional Advisors

Actuary

Office of the Superintendent of Financial Institutions
www.osfi-bsif.gc.ca

Auditor

Auditor General of Canada
www.oag-bvg.gc.ca

Legal Advisor

Department of Justice Canada
www.canada.justice.gc.ca

Glossary of Terms

ABCP – Asset-Backed Commercial Papers (ABCP) - short-term corporate securities, typically with a maturity of less than one year, issued by a bank or other conduit, which are backed by assets such as real estate, auto loans or other commercial assets.

Accrued Pension Benefits – The present value of benefits to be paid under the Plan for services provided by members up to the date of the financial statements.

Actuarial Adjustment – The amount withdrawn from the Plan in respect of a surplus or the additional amount contributed by the government in respect of a deficit.

Actuarial Asset Value Adjustment – The difference between investments valued at fair value and investments valued at market related values.

Actuarial Assumptions – Predictions made by actuaries about rates of return on plan assets, retirement age, mortality rates, future salary levels and other factors.

Actuarial Valuation - An assessment of the financial status of a pension plan. It consists of the valuation of assets held by the fund and the accrued pension benefits.

Administrator – The person or group of persons responsible for the overall operation of a pension plan.

Annuities - Monthly payments of a set amount to a retired member.

Benefits Earned – The cost of benefits for services provided by members during the fiscal year.

Best Estimate Assumptions - A set of actuarial assumptions which reflect the administrator’s judgment of the most likely set of conditions affecting future events.

Canada Pension Plan (CPP) — Amandatory earnings-related pension plan implemented January 1, 1966, to provide basic retirement income to Canadians between the ages of 18 and 70 who work in all the provinces and territories, except in the province of Quebec, which operates its own pension plan similar to the CPP for persons who work in that province.

Commuted Value – A lump sum payment that represents the present value of future benefits.

Consumer Price Index (CPI) – A measure of changes in the cost of living using a hypothetical basket of consumer goods.

Contributions Receivable – An amount owing to the Plan in respect of services provided by members up to the date of the financial statements.

Currency Risk - The risk that the value of investments purchased in foreign currency will fluctuate due to changes in exchange rates.

Current Service – Service provided by members during the current fiscal year.

Current year change in fair value of investments – The unrealized gain or loss on investments held at year-end resulting from differences between fair value and cost on the date of the financial statements.

Deficit – The amount by which the Plan is under-funded.

Defined Benefit Pension Plan – A pension plan that specifies the benefits that the employee will receive at the time of retirement.

EAFE – Europe, Australasia, Far East

Excess of actuarial value of net assets over accrued pension benefits – The funded status of the Plan. A positive amount indicates that the Plan is over–funded, while a negative amount indicates that the Plan is under-funded.

Experience gains and losses – The difference between what has occurred and what was expected.

Fair value – The amount of the consideration that would be agreed upon in an arms length transaction between knowledgeable, willing parties who are under no compulsion to act.

Foreign Currency Exposure - The amount by which the Plan’s investments are exposed to currency risk.

Market Related Value – The value of an investment based on actuarial assumptions used to value the accrued pension benefits. This is used to reduce the impact of large fluctuations in the market value of the Plan’s investments.

Net Assets Available for Benefits – The cash, receivables and investments net of liabilities available to pay for pension benefit payments expected to be paid in the future. For the purposes of this definition, a Plan’s liabilities do not include accrued pension benefits.

Net Present Value - The present value of an investment's future net cash flows minus the initial investment. If positive, the investment should be made (unless an even better investment exists), otherwise it should not.

Past Service – Service provided by members prior to the start of the current fiscal year.

Pension Plan – An arrangement whereby an employer provides benefits to employees after they retire for services provided while they were working.

Projected Benefit Method Prorated on Services – A method of measuring the amount of the accrued pension benefit which requires the actuary to allocate an equal portion of the total estimated benefit to each year of the employee’s service.

Public Sector Pension Investment Board (PSP Investments) - A crown corporation established to invest net contributions received from the Public Service Pension Plan, the Canadian Forces Pension Plan, the Reserve Force Pension Plan and the RCMP Pension Plan.

RCMP Pension Fund – An account established by the RCMP Superannuation Act to record transactions relating to service provided by members on or after April 1, 2000. The account is used to transfer funds to and from PSP Investments; the balance represents an amount owing to the Plan from the Government of Canada.

RCMP Superannuation Account – An account established by the RCMP Superannuation Act to record transactions relating to service provided by members before April 1, 2000. The balance represents an amount owing to the Plan from the Government of Canada.

Registered Pension Plan – A pension plan that has a tax-exempt status.

Sponsor – The employer.

Surplus – The amount by which the Plan is over funded.

Triennially - Every three years.

As of February 6, 2006, the Minister of Public Safety and Emergency Preparedness adopted the new title of Minister of Public Safety. Since the Department of Public Safety and Emergency Preparedness Act does not yet reflect the new name, this report will continue to refer to the Minister of Public Safety and Emergency Preparedness until the necessary legislative changes have been made.