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

Mark Perlman, CPA, CMA
Chief Financial Officer
Employment and Social Development Canada

Gatineau, Canada August 29, 2017

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 2017. The purpose of this valuation is to determine the actuarial liabilities and financial position of the Account as at 31 March 2017. 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 2017, 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 29 August 2017, 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 2018.

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

Thierry Truong
Actuarial Officer
Fellow 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
29 August 2017

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 2017, 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 2017, 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

29 August 2017
Halifax, Canada

Statement of financial position As at March 31
(in thousands Canadian dollars)

  2017 2016
Net assets available for benefits
Accounts receivable 44 59
Pension obligations
Actuarial present value of accrued benefits (Note 3) 114,318 126,484
Deficit to be financed by the Government of Canada (Note 4) 114,274 126,425

Approved by:

Louise Levonian
Deputy Minister
Employment and Social Development Canada

Mark Perlman, CPA, CMA
Chief Financial Officer
Employment and Social Development Canada

Statement of changes in net assets available for benefits
for the year ended March 31
(in thousands of Canadian dollars)

  2017 2016
Paid by the Government of Canada
Premiums (Note 4) (negative 4) (negative 5)
Annuity payments (Note 4) 21,360 23,493
Premium refunds and other (Note 4) 27 107
Subtotal 21,383 23,595
Amount paid through the Consolidated Revenue Fund (negative 21,383) (negative 23,595)
Administrative expenses
Services received without charge (Note 2(c) and Note 5) 1,590 1,802
Services contributed by Employment and Social Development Canada (Note 2(c) and Note 5) (negative 1,590) (negative 1,802)
Change in accounts receivable and increase (decrease) in net assets (negative 15) (negative 61)
Net assets available for benefits at beginning of year 59 120
Net assets available for benefits at end of year 44 59

Statement of changes in pension obligations
for the year ended March 31
(in thousands of Canadian dollars)

  2017 2016
Actuarial present value of accrued benefits at beginning of year (negative 126,484) (negative 141,435)
Interest and other income (negative 8,194) (negative 9,143)
Benefits paid 21,402 23,661
Experience gains (losses) (negative 598) 433
Change in mortality assumptions (Note 4) (negative 444)
Actuarial present value of accrued benefits at end of year (Note 3) (negative 114,318) (negative 126,484)

Notes to the financial statements for the year ended March 31, 2017

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. Section 4600 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, 2017 were authorized for issue by the signatories on August 29th, 2017.

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. Services received without charge

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

d. Measurement uncertainty

The preparation of these financial statements 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 presented 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 2017 is $120.5 million ($133.8 million in 2015–2016).

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, 2017, estimated using experience-adjusted mortality rates, would be $114.3 million ($126.5 million in 2015–2016). This amount is $6.2 million lower than what would be the actuarial present value of accrued benefits estimated using the mortality tables prescribed by regulations ($7.3 million in 2015–2016).

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 $114.3 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 2017.

(in thousands of Canadian dollars)

  2017 2016
Actuarial present value of accrued benefits is comprised of:
Deferred annuities 3,989 5,004
Mature annuities 110,329 121,480
Total 114,318 126,484

The average age of annuitants was estimated to be 84.7 years and the remaining life of the Account was estimated at 42 years as at March 31, 2017.

The next actuarial valuation will be performed as at March 31, 2018.

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.

(in thousands of Canadian dollars)

  2017 2016
Liability of the Government of Canada at beginning of year 126,425 141,315
Accrued interest 8,045 9,006
Premiums 4 5
Reclaimed annuities 172 206
Annuity payments (negative 21,360) (negative 23,493)
Premium refunds and other (negative 27) (negative 107)
Unclaimed annuities (negative 27) (negative 74)
Experience (gains) losses 598 (negative 433)
Change in mortality assumptions 444
Subtotal (negative 12,151) (negative 14,890)
Liability of the Government of Canada at end of year 114,274 126,425

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.

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 gains and losses

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 due to changes resulting from experience adjustment and the effects of changes in actuarial assumptions.

For experience gains or losses, there are no new contracts purchased under the Government Annuities Act, the main sources of experience gains or losses are mortality and retirements of existing members. Mortality gains and losses include changes in expected future payments due to death or survival of annuitants and the difference between actual and expected benefit payments during the year.

For changes in mortality assumptions, management's best estimate of the actuarial present value of accrued benefits is calculated based on mortality rates used for the actuarial assessments of the Canada Pension Plan (CPP). The actuarial present value of accrued benefits as at March 31, 2017, was estimated based on mortality rates used in the Twenty-seventh Actuarial Report on the CPP while the amount as at March 31, 2016, was based on mortality rates used in the Twenty-sixth Actuarial Report on the CPP.

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:

(in thousands of Canadian dollars)

  2017 2016
Salaries 1 109 1 329
Operating costs 418 406
Actuarial services 63 67
Services received without charge 1,590 1,802

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