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 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 Families, Children and Social Development.

Louise Levonian
Deputy Minister Employment and Social Development Canada

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

Gatineau, Canada September 1 2016

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 2016. The purpose of this valuation is to determine the actuarial liabilities and financial position of the Account as at 31 March 2016. The results of the valuation are included in the Public Accounts of Canada as well as in the Account's financial statements.

As at 31 March 2016, 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:

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:

Our valuation has been prepared, and our opinions given, in accordance with accepted actuarial practice in Canada. As at 1 September 2016, 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 2017.

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

Assia Billig
Actuary
Fellow of the Canadian Institute of Actuaries
Office of the Chief Actuary

Office of the Superintendent of Financial Institutions Canada
Ottawa, Canada
1 September 2016

Independent Auditor's Report

To the Minister of Families, Children 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 2016, 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 2016, 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 2016
Halifax, Canada

Table summary

The table presents, in thousands of Canadian dollars, a two-year comparative of the statement of financial position as at March 31 of the Government Annuities Account. 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. The second series of rows presents the pension obligations. A final row presents the deficit to be financed by the Government of Canada.

Statement of financial position
(in thousands of Canadian dollars)

  2016 2015
Net assets available for benefits
Accounts receivable 59 120
Pension obligations
Actuarial present value of accrued benefits (Note 3) 126,484 141,435
Deficit to be financed by the Government of Canada (Note 4) 126,425 141,315

Approved by:

Louise Levonian
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 Canadian dollars, a two-year comparative of the statement of changes in net assets available for benefits for the year ended March 31. It consists of three columns: a detailed listing of components; current year; previous year. The first series of rows presents payments made by the Government of Canada 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 (decrease) in net assets plus the net assets available for benefits at beginning of year. A final row presents the net assets available for benefits at end of year.

Statement of changes in net assets available for benefits
for the year ended March 31

(in thousands of Canadian dollars)

  2016 2015
Paid by the Government of Canada
Premiums (Note 4) (negative 5) (negative 28)
Annuity payments (Note 4) 23,493 25,872
Premium refunds and other (Note 4) 107 89
Subtotal 23,595 25,933
Amount paid through the Consolidated Revenue Fund (negative 23,595) (negative 25,933)
Administrative expenses
Services received without charge (Note 2 (c) and Note 5) 1,802 1,940
Services contributed by Employment and Social Development Canada (Note 2 (c) and Note 5) (negative 1,802) (negative 1,940)
Change in accounts receivable and increase (decrease) in net assets (negative 61) 9
Net assets available for benefits at beginning of year 120 111
Net assets available for benefits at end of year 59 120

Table summary

The table presents, in thousands of Canadian dollars, a two-year comparative of the statement of changes in pension obligations for the year ended March 31. 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 following three rows present the changes in obligations. A final row presents the actuarial present value of accrued benefits at end of the year

Statement of changes in pension obligations
for the year ended March 31

(in thousands of Canadian dollars)

  2016 2015
Actuarial present value of accrued benefits at beginning of year (negative 141,435) (negative 166,138)
Interest and other income (negative 9,143) (negative 10,956)
Benefits paid 23,661 25,952
Experience gains (Note 3) 433 9,707
Actuarial present value of accrued benefits at end of year (Note 3) (negative 126,484) (negative 141,435)

Notes to the financial statements for the year ended March 31, 2016

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, 2016 were authorized for issue by the signatories on September 1, 2016.

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. The actuarial present value of accrued benefits depends on factors that are determined on an actuarial basis using assumptions such as mortality rates. Any changes in these assumptions will impact the carrying amount of the actuarial present value of accrued benefits. The carrying amount of the actuarial present value of accrued benefits as at the end of the reporting fiscal years is included in Note 3. 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.

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 per cent. 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. Based on these Act and Regulations, the balance of the Government Annuities Account as presented in Table 6.1 of Volume I of the Public Accounts of Canada 2016 is $133.8 million ($149.6 million in 2014–2015).

As per a mortality experience study performed by the Office of the Chief Actuary, the actuarial present value of accrued benefits as at March 31, 2016, estimated using experience-adjusted mortality rates, would be $126.5 million ($141.4 million in 2014–2015). This amount is $7.3 million lower than what would be the actuarial present value of accrued benefits estimated using the mortality tables prescribed by regulations ($8.2 million in 2014–2015).

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 $126.5 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 reflects the experience-adjusted mortality rates.

Consequently, the amount of the pension obligation presented in the Account's financial statements differs from the balance of the Account in the Public Accounts of Canada 2016.

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; previous year. The first three rows present the content of the actuarial present value of accrued benefits. A final row presents the total for this table.

(in thousands of Canadian dollars)

  2016 2015
Actuarial present value of accrued benefits is comprised of:
Deferred annuities 5,004 7,019
Mature annuities 121,480 134,416
Total 126,484 141,435

The average age of annuitants was estimated to be 84.2 years and the remaining life of the Account was estimated at 43 years as at March 31, 2016.

The next actuarial valuation will be performed as at March 31, 2017.

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. 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 year to date transactions. A final row presents the reported liabilities at the end of the year.

(in thousands of Canadian dollars)

  2016 2015
Liability of the Government of Canada at beginning of year 141,315 166,027
Accrued interest 9,006 10,651
Premiums 5 28
Reclaimed annuities 206 310
Annuity payments (negative 23,493) (negative 25,872)
Premium refunds and other (negative 107) (negative 89)
Unclaimed annuities (negative 74) (negative 33)
Actuarial surplus (negative 433) (negative 1,544)
Change in mortality assumption (negative 8,163)
Total (negative 14,890) (negative 24,712)
Liability of the Government of Canada at end of year 126,425 141,315

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

Premiums are deposited in the Consolidated Revenue Fund. This deposit earns interest at a rate of seven per cent 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. These administrative services include the following:

Table summary

The table presents, in thousands of Canadian dollars, a two-year comparative of the administrative services received from departments, agencies and Crown corporations. It consists of three columns: a detailed listing of components; current year and previous year. A final row presents the total for this table.

(in thousands of Canadian dollars)

  2016 2015
Salaries 1,329 1,367
Operating costs 406 516
Actuarial services 67 57
Services received without charge 1,802 1,940

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