Government Annuities Account

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Management's Responsibility for Financial Statements

The financial statements of the Government Annuities Account are prepared in accordance with Canadian accounting standards for pension plans by the management of Employment and Social Development Canada. Management is responsible for the integrity and objectivity of the information in the financial statements, including the amounts which must, of necessity, be based on best estimates and judgment. The significant accounting policies are identified in Notes to the Financial Statements - GAA - Note 2 to the financial statements.

To fulfill its accounting and reporting responsibilities, management has developed and maintains books of account, financial and management controls, information systems and management practices. These systems are designed to provide reasonable assurance that financial information is reliable, that assets are safeguarded and that transactions are properly authorized and recorded in accordance with the Government Annuities Improvement Act and the Government Annuities Act and regulations.

The Auditor General of Canada, the external auditor of the Government Annuities Account, conducts an independent audit of the financial statements in accordance with Canadian generally accepted auditing standards and provides a report to the Minister of Employment and Social Development.

Ian Shugart
Deputy Minister
Employment and Social Development Canada

Alain P. Séguin, MBA, CPA, CGA
Chief Financial Officer
Employment and Social Development Canada

Gatineau, Canada
1 September 2015

Report of the Actuary

The Office of the Chief Actuary, Office of the Superintendent of Financial Institutions Canada, has the mandate of performing the annual actuarial valuation of the Government Annuities Account (the "Account") as at 31 March 2015. The purpose of this valuation is to determine the actuarial liabilities and financial position of the Account as at 31 March 2015. The results of the valuation are included in the the Public Accounts of Canada as well as in the Account’s financial statements.

As at 31 March 2015, the actuarial liabilities presented in the Public Accounts of Canada and used to determine the amount charged to the Account and credited to the Consolidated Revenue Fund, are based on prescribed mortality rates. In addition, the actuarial liabilities presented in the statement of financial position, statement of changes in net assets available for benefits, and statement of changes in pension obligations of the Account’s financial statements, are based on best estimate experience-adjusted mortality rates.

The valuation of the Account's actuarial liabilities and financial position is therefore based on:

  • membership data as at 31 March 2015 provided by Employment and Social Development Canada (ESDC) and Service Canada;
  • asset data provided by ESDC;
  • a seven percent annual interest rate as prescribed by the Government Annuities Regulations;
  • for purposes of the Public Accounts of Canada, mortality rates as prescribed by the Government Annuities Regulations, that is, the Annuity Table for 1983, for individual and group annuities, as modified by Projection Scale G published by the Society of Actuaries; and
  • for purposes of the Account’s financial statements, best estimate experience-adjusted mortality rates.

The Account's assets are notional and in the form of a deposit with the Receiver General for Canada. Therefore, actuarial liabilities equal the present value of future payments discounted at the prescribed interest rate. Since administrative expenses are paid by the government out of general funds, no provision for expenses is made in the valuation. This valuation contains no added margins for adverse deviation.

In our opinion, considering that the valuation is prepared pursuant to the Government Annuities Act and the Government Annuities Improvement Act:

  • the data on which our valuation is based are sufficient and reliable for the purpose of the valuation;
  • the assumptions used for purposes of the Public Accounts of Canada comply with legislative requirements and, in this context are, in aggregate, reasonable and appropriate;
  • the assumptions used for purposes of the Account’s financial statements, are, in aggregate, reasonable and appropriate;
  • the methodology employed is appropriate and consistent with sound actuarial principles; and
  • the actuarial valuation is appropriate, it conforms to statutory requirements and the financial statements fairly present its results.

Our valuation has been prepared, and our opinions given, in accordance with accepted actuarial practice in Canada. As at 1 September 2015, there are no subsequent events of which we are aware that would have an impact on the valuation. The next valuation will be performed as at 31 March 2016.

Michel Millette
Senior Actuary
Fellow of the Canadian Institute of Actuaries
Office of the Chief Actuary

Myriam Demers
Actuarial Officer
Associate of the Society of Actuaries
Office of the Chief Actuary

Christine Dunnigan
Senior Actuarial Officer
Fellow of the Canadian Institute of Actuaries
Office of the Chief Actuary

Office of the Superintendent of Financial Institutions Canada
Ottawa, Canada
1 September 2015

Independent Auditor's Report

To the Minister of Employment and Social Development

Report on the Financial Statements

I have audited the accompanying financial statements of the Government Annuities Account, which comprise the statement of financial position as at 31 March 2015, and the statement of changes in net assets available for benefits and statement of changes in pension obligations for the year then ended, and a summary of significant accounting policies and other explanatory information.

Management's Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these financial statements in accordance with Canadian accounting standards for pension plans, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

Auditor's Responsibility

My responsibility is to express 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 comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

I believe that the audit evidence I have obtained is sufficient and appropriate to provide a basis for my audit opinion.

Opinion

In my opinion, the financial statements present fairly, in all material respects, the financial position of the Government Annuities Account as at 31 March 2015, and the changes in its net assets available for benefits and changes in its pension obligations for the year then ended in accordance with Canadian accounting standards for pension plans.

Report on Other Legal and Regulatory Requirements

In my opinion, the transactions of the Government Annuities Account that have come to my notice during my audit of the financial statements have, in all significant respects, been in accordance with the Government Annuities Improvement Act, and the Government Annuities Act and regulations.

Heather McManaman, CPA, CA
Principal
for the Auditor General of Canada

1 September 2015
Halifax, Canada

Table Summary

The table presents, in thousands of dollars, a two‑year comparative of the statement of financial position. It consists of three columns: a detailed listing of components; current year; previous year. The first series of rows presents the net assets available for benefits and accounts receivable. The second series of rows presents the pension obligations. The final row presents the deficit to be financed by the Government of Canada.

(in thousands of Canadian dollars)

Statement of Financial Position
as at March 31

  2015 2014
Net assets available for benefits    
Accounts receivable 120 111
Pension obligations    
Actuarial present value of accrued benefits (Note 3) 141,435 166,138
Deficit to be financed by the Government of Canada (Note 4) 141,315 166,027

Approved by:

Ian Shugart
Deputy Minister
Employment and Social Development Canada

Alain P. Séguin, MBA, CPA, CGA
Chief Financial Officer
Employment and Social Development Canada

Table Summary

The table presents, in thousands of dollars, a two‑year comparative of the statement of changes in net assets available for benefits. It consists of three columns: a detailed listing of components; current year; previous year. The first series of rows present the premiums, annuity payments and premium refunds and other paid by the Government of Canada, the subtotal, followed by the amount paid through the Consolidated Revenue Fund. The second series of rows presents the administrative expenses. The final rows present the change in accounts receivable and increase or decrease in net assets followed by the net assets available for benefits at beginning and at end of year.

(in thousands of Canadian dollars)

Statement of Changes in Net Assets Available for Benefits
for the year ended March 31

  2015 2014
Paid by the Government of Canada    
Premiums (Note 4) (negative 28) (negative 34)
Annuity payments (Note 4) 25,872 28,477
Premium refunds and other (Note 4) 89 71
Subtotal 25,933 28,514
Amount paid through the Consolidated Revenue Fund (negative 25,933) (negative 28,514)
Administrative expenses    
Services received without charge (Note 2(c)) 1,940 2,112
Services contributed by Employment and Social Development Canada (Note 2(c)) (negative 1,940) (negative 2,112)
Change in accounts receivable and increase (decrease) in net assets 9 (negative 2)
Net assets available for benefits at beginning of year 111 113
Net assets available for benefits at end of year 120 111

Table Summary

The table presents, in thousands of dollars, a two‑year comparative of the statement of changes in pension obligations. It consists of three columns: a detailed listing of components; current year; previous year. The first row presents the actuarial present value of accrued benefits at beginning of year. The next three rows present the changes. The final row presents the actuarial present value of accrued benefits at end of the year.

(in thousands of Canadian dollars)

Statement of Changes in Pension Obligations
for the year ended March 31

  2015 2014
Actuarial present value of accrued benefits at beginning of year (negative 166,138) (negative 183,108)
Interest and other income (negative 10,956) (negative 12,315)
Benefits paid 25,952 28,550
Experience gains (Note 3) 9,707 735
Actuarial present value of accrued benefits at end of year (negative 141,435) (negative 166,138)

Notes to the Financial Statements for the year ended March 31, 2015

1. Authority, objective and responsibilities

The Government Annuities Account (the Account) was established in 1908 by the Government Annuities Act, as modified by the Government Annuities Improvement Act.

The purpose of the Government Annuities Act was to assist individuals and groups of Canadians to prepare financially for their retirement by purchasing Government Annuities. In 1975, the Government Annuities Improvement Act discontinued future sales of Government Annuity contracts. Annuities are deferred until their maturity date, at which time payments to annuitants begin.

The Account is administered by Employment and Social Development Canada (ESDC) and operates through the Consolidated Revenue Fund.

2. Significant accounting policies

a. Basis of presentation

The financial statements of the Account are prepared in accordance with Canadian accounting standards for pension plans (Section 4600) on a going concern basis. They are prepared in Canadian dollars, the Account's functional currency. This section requires pension plans of publicly accountable enterprises to comply on a consistent basis with International Financial Reporting Standards (IFRS) to the extent that those standards do not conflict with the requirements of Section 4600, which take precedence.

The financial statements for the year ended March 31, 2015 were authorized for issue by the signatories on September 1, 2015.

b. Actuarial present value of accrued benefits

The method utilized to calculate the actuarial present value of accrued benefits comprises, in respect of deferred and matured annuities, the present value of such annuities actuarially determined on the basis of prescribed interest rates and best estimate experience‑adjusted mortality tables.

c. Service received without charge

Administrative services received without charge from ESDC are recorded in the statement of changes in net assets available for benefits at their estimated cost. A corresponding amount is credited directly to the statement of changes in net assets available for benefits.

d. Measurement uncertainty

The preparation of these financial statements in accordance with Canadian accounting standards for pension plans requires management to make estimates and assumptions that affect the reported amount of assets, actuarial present value of accrued benefits, and income at the date of the financial statements. Actual results may differ significantly from the estimates and assumptions; therefore it is possible that the amounts for the actuarial present value of accrued benefits and related accounts could change materially in the near term. Revisions to accounting estimates are recognized in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future periods.

3. Actuarial present value of accrued benefits

The Office of the Chief Actuary, Office of the Superintendent of Financial Institutions Canada, performs the annual actuarial valuation of the Government Annuities Account as at March 31. In prior years, the amount of the accrued benefit obligation presented in the Account's financial statements was estimated using the interest and mortality rates prescribed by regulations. As per the Government Annuities Improvement Act and Government Annuities Regulations, expected future payments are to be discounted using an annual interest rate of seven percent. Future payments are to be estimated using the mortality rates from the 1983 mortality tables published by the Society of Actuaries, for individual and group annuities respectively, modified by Projection Scale G.

During the fiscal year, following a mortality experience study performed by the Office of the Chief Actuary, the actuary determined that the actuarial present value of accrued benefits as at 31 March 2015, estimated using experience‑adjusted mortality rates, would be $141.4 million. This amount is $8.2 million lower than what would be the actuarial present value of accrued benefits estimated using the mortality rates prescribed by regulations.

As per Canadian accounting standards for pension plans, the financial statements of the Account need to present management's best estimate of the actuarial present value of accrued benefits. Management determined that the amount of $141.4 million represents its best estimate of the pension obligations. As a result, the mortality assumption used in the calculation of the actuarial present value of the accrued benefits was changed to reflect the experience‑adjusted mortality rates.

The impact of using the experience‑adjusted mortality rates instead of the prescribed mortality rates in the statement of financial position and the statement of changes in pension obligations is as follows:

Table Summary

The table presents, in thousands of Canadian dollars, the Statement of Financial Positions as at March 31, 2015. It consists of four columns: a detailed listing of components; Experience adjusted mortality tables; Prescribed mortality tables and Difference. The first series of rows present the net assets available for benefits. The next row presents the pension obligations. The final row presents the deficit to be financed by the Government of Canada.

(in thousands of Canadian dollars)

Statement of Financial Position
as at March 31, 2015

  Experience adjusted mortality tables Prescribed mortality tables Difference
Net assets available for benefits      
Accounts receivable 120 120  
Pension obligations      
Actuarial present value of accrued benefits 141,435 149,598 (negative 8,163)
Deficit to be financed by the Government of Canada 141,315 149,478 (negative 8,163)
Table Summary

The table presents, in thousands of Canadian dollars, the Statement of Changes in Pension Obligations for the year ended March 31, 2015. It consists of four columns: a detailed listing of components; Experience adjusted mortality tables; Prescribed mortality tables and Difference. The first series of rows presents the actuarial present value of accrued benefits at beginning of year. The final row presents the actuarial present value of accrued benefits at end of year.

(in thousands of Canadian dollars)

Statement of Changes in Pension Obligations
for the year ended March 31, 2015

  Experience adjusted mortality tables Prescribed mortality tables Difference
Actuarial present value of accrued benefits at beginning of year (negative 166,138) (negative 166,138)  
Interests and other income (negative 10,956) (negative 10,956)  
Benefit paid 25,952 25,952  
Experience gains 9,707 1,544 (negative 8,163)
Actuarial present value of accrued benefits at end of year (negative 141,435) (negative 149,598) (negative 8,163)

The amount of the pension obligation presented in the Account's financial statements differs from the balance of the Government Annuities Account as presented in Table 6.1 of Volume I of the Public Accounts of Canada 2015, which is calculated based upon mortality tables prescribed by the Government Annuities Improvement Act and Government Annuities Regulations.

Table Summary

The table presents, in thousands of Canadian dollars, a two-year comparative of the actuarial present value of accrued benefits. It consists of three columns: a detailed listing of components; current year and previous year. The first three rows present the content of the actuarial present value of accrued benefits. The final row presents the total for this table.

(in thousands of Canadian dollars)

Statement of Changes in Net Assets available for Benefits

  2015 2014
Actuarial present value of accrued benefits is comprised of:    
Deferred annuities 7,019 7,759
Mature annuities 134,416 158,379
Total 141,435 166,138

The average age of annuitants was estimated to be 83.7 years and the remaining life of the Account was estimated at 43 years as at March 31, 2015.

The next actuarial valuation will be performed as at March 31, 2016.

4. Deficit to be financed by the Government of Canada

The Government Annuities Act provided authority for the Government of Canada to sell annuities to the Canadian Public. The Government of Canada has entered into individual annuity contracts with a promise to pay the annuities and is required under the Act to keep an account, the Government Annuities Account, in the Consolidated Revenue Fund to record all transactions related to these annuities. These transactions include all moneys received and paid, the assets and liabilities relating to the granting of an annuity, unclaimed and reclaimed annuities and the liability representing the present value of prospective annuities contracted. It also includes the accrual of interest earned.

Table Summary

The table presents, in thousands of Canadian dollars, a two-year comparative of the deficit to be financed by the Government of Canada reported in the Public Accounts of Canada. It consists of three columns: a detailed listing of components; current year and previous year. The series of rows presents the reported liabilities at the beginning of the year followed by a subtotal. The final row presents the reported liabilities at the end of the year.

(in thousands of Canadian dollars)

  2015 2014
Liability of the Government of Canada at beginning of year 166,027 182,995
Accrued interest 10,651 11,747
Premiums 28 34
Reclaimed annuities 310 594
Annuity Payments (negative 25,872) (negative 28,477)
Premium refunds and other (negative 89) (negative 71)
Unclaimed annuities (negative 33) (negative 60)
Actuarial surplus (negative 1,544) (negative 735)
Change in mortality assumption (negative 8,163)  
Total (negative 24,712) (negative 16,968)
Liability of the Government of Canada at end of year 141,315 166,027

Accrued interest

Interest is recorded on an accrual basis and is calculated on the actuarial present value of accrued benefits as prescribed by the Government Annuities Improvement Act and the Government Annuities Regulations.

Premiums and other recoverable amounts

Premiums are deposited in the Consolidated Revenue Fund. This deposit earns interest at a rate of seven percent in accordance with the Government Annuities Improvement Act and the Government Annuities Regulations. Due to the short‑term nature, the carrying value of the deposit with the Receiver General for Canada approximates its fair value.

Reclaimed annuities

Reclaimed annuities represent previously unclaimed amounts of annuitants that could not be located. If the annuitants are subsequently located, the actuarial present value of these annuities is paid.

Unclaimed annuities

Unclaimed annuities represent amounts of annuities that could not be paid because the annuitants could not be located.

Actuarial surplus/deficit

At the end of any fiscal year, the amount of the actuarial present value of accrued benefits may be different than the amount of actuarial liabilities determined by the actuary.

5. Related Party Transactions

The Account is related to Government departments, agencies and Crown corporations through common control held by the Government of Canada. There were no further significant transactions with related parties other than those described in Note 2(c), Services received without charge.

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