CPP Independent Peer Review

By Bonnie Robinson

Every three years, the Office of the Chief Actuary (OCA) is required by law to produce an actuarial report on the Canada Pension Plan (CPP). To ensure that the report meets high professional standards, is based on reasonable assumptions, and provides sound actuarial advice, the OCA commissions an independent peer review of it, conducted by individuals who are enrolled with the CIA.

"First recommended by the federal and provincial finance ministers some twenty years ago, external peer reviews have contributed significantly to the quality, transparency, and credibility of our actuarial reports," says Michel Montambeault, director, OCA. "We carefully analyze each recommendation and many have been implemented over the years. We look forward to the next independent review to further improve the content of our actuarial report and to reinforce the independence of our office."

Panel Member Selection

The OCA begins work on the report a year before it is due. By May of the year in which the report will be released, the OCA starts the process to select the three independent reviewers who will form the independent peer review panel. Interested applicants can read a summary of the process and terms of reference and fill out an application form. This year, the application deadline is July 15.

Michel Montambeault

Applicants are vetted by the UK Government Actuary’s Department (GAD) which classifies, and ranks the applicants through an open process, and selects the panel members by mid-September. The GAD is recognized for the international work it does. "Having a third party involved further increases the credibility of the review process," says Mr. Montambeault.

In addition to being a member enrolled with the CIA, experience in social security and investments and status with the CIA, such as volunteering, publications, and committee experience, are just some of the criteria used to classify the candidates for the panel.

Review Process

The independent peer review panel does not see the Actuarial Report on the CPP until it is tabled in the House of Commons in December. According to Mr. Montambeault, in the months between their appointment and access to the report, panel members receive binders of information and materials that describe the data, methods, and assumptions that the OCA used to do its work. This information includes the documentation of all demographic, economic, and investment assumptions, as well as the presentations that were made at the triennial CPP seminar organized by the OCA in September 2015, and those made to anyone the chief actuary met with to prepare the CPP report.

Once it receives the CPP report, the panel has three months to produce its own report. The panel sends questions to the OCA, and the OCA meets personally with the panel over two days to provide them with answers. "It’s quite intense," says Mr. Montambeault. The panel asks additional questions during the meeting and also takes a day and a half to meet with organizations that the chief actuary met with, including the Bank of Canada, Statistics Canada, Finance Canada, and the Canada Pension Plan Investment Board (CPPIB).

Deeper and More Technical Actuarial Work

CIA Fellow Mark Campbell has served on the CPP independent review panel three times. "On any panel, one person is selected as chair, and we divide the work up as we see fit," he says. "I’ve done more work on compliance with professional standards and statistical analysis issues," he adds, so those are the areas of the CPP report he has looked at. "Others may have focused on economic or demographic issues, so are better suited to examine those areas." Mr. Campbell has been chair once and an ordinary member the other two times he has served on the panel. The chair is also usually the drafter of the report, ensuring that everything is consistent and well-presented.

Mark Campbell

Mr. Campbell appreciates the challenge of the work that the panel does. "It’s very different from usual actuarial work unless you are a social security actuary," he says. "This is deeper work involving population data, great volume and complexity of data, and a longer time frame. It’s more technical and the statistical aspects are complex. The CPP is a large and important program so the work that goes into it is more complex and elaborate."

He also finds the work more interesting than day-to-day actuarial activities. "You get to dig deeper than you ever have before. You learn things, test your own expertise," he says. "Most actuaries work with pre-release drafts so they can influence the final report, but the CPP actuarial report is already final when the reviewers receive it. You are rating it. The question is not did they do it the way you would have, but have they done a good job? Is it in the range of accepted actuarial practice, even if you wouldn’t have done it that way?"

Protecting the Public Interest

Mr. Campbell adds that the independent review started at a time when there was concern that there was political influence on the chief actuary. It was implemented to assure the public that the work of the chief actuary was done properly and without political influence.

The panel’s job is to "help assure the public that the CPP is being well-managed," he says. "Virtually every Canadian is affected by the CPP program so it is important to review it."

The chief actuary receives a draft of the panel’s report before it’s finalized. The UK GAD reviews the panel’s final report and provides an opinion that it, in turn, was prepared in an appropriate manner. The review panel report and GAD review are then released to the public.

Improving the Actuarial Report on the CPP

"It is definitely a process that is a win-win situation for us," says Mr. Montambeault. "A win as it provides us with more feedback on the report and provides credibility to Canadians that we are doing things properly and helps promote Canadians’ confidence in the valuation of this important program."

The panel usually makes between 8–12 recommendations, from suggesting more research into equity risk premiums to stochastic considerations. "We try to put them into place," Mr. Montambeault adds. "We get to improve and reassure the public that we are doing work according to standards and using reasonable methods for the work we do. It’s a positive for us in making sure our reports are better each time we do them."

Adds Mr. Campbell, "actuarial science is about applied math—the review is highly mathematical, and it also matters to the public. We are all affected by the CPP in one way or another. If you want to make a difference in people’s lives this review is an excellent way to do it."

Bonnie Robinson is the English editor at the CIA’s Head Office.

Canadian Institute of Actuaries/Institut canadien des actuaires