Straight talk on retirement and pensions
February 6, 2018
2017 Annual Report – great news no matter how you slice it
The plan’s 2017 Annual Report is now available on this website. The words “fair, strong and responsible” adorn the cover, but what does the report really say about the health of your plan?
Plan members and, where applicable, their spouse, will enjoy a pension for life in retirement regardless of how long they live. The plan has about 59,470 active members contributing toward future pensions, 46,282 retired members collecting pensions, and another 16,868 inactive members (people who are no longer employed with a plan employer but have left their contributions in the plan to receive a pension when they retire). The average annual pension in pay is $21,317.
To continue to pay pensions to retired members, and to pay pensions to active and inactive members in future years, the plan needs cash – and lots of it.
In my last BOOM! post I shared these highlights from the report:
- Investments earned 12.8 per cent for the fiscal year 2016/17
- Total net assets grew to $29.2 billion, an increase of $3.0 billion
These investment results are great news and demonstrate outstanding financial results. For every pension dollar paid by the plan, about 75 cents comes from investment returns. The balance comes from employer and member contributions, which are roughly equal. Clearly the ability of the plan to continue paying pensions depends on continued strong investment returns.
The latest valuation reveals the plan is fully funded
Every three years, an independent professional actuary assesses the financial position of the plan. This assessment is called a valuation.
The actuary calculates the plan’s liabilities (cost of paying promised benefits) and compares them to assets (plan investments). The actuary also makes projections about plan demographics, such as how long plan members will live and when they will retire.
Valuations help your trustees make decisions about plan funding, including contribution rates—they determine the rates necessary to ensure full funding, and delivery of the basic pension promise. The latest valuation shows a funding ratio of 108 per cent as at March 31, 2017. This demonstrates that the plan continues to be fully funded and is in an even stronger financial position today than it was at the time of its last valuation, when the funding ratio was 101 per cent.
While strong long-term investment results are crucial to the plan’s future success, your trustees have not lost sight of how important it is to invest responsibly. With the support of the plan’s investment manager, British Columbia Investment Management Corporation, your trustees oversee prudent and responsible investment of the pension fund for the benefit of all plan members. This means that plan assets are invested in a manner that’s cost effective, isn’t excessively risky, and takes environmental, social and governance (ESG) matters into consideration. So-called ESG investing will be discussed in a future BOOM! post. For now, it’s good to know that research suggests companies doing a good job of managing ESG matters have less risk and perform better financially over the longer term.
Your trustees are responsible for plan administration and pension fund management. They’re appointed by employer and member partners, so there’s balanced representation around the boardroom table.
Trustees consider whether their decisions are fair to employers and plan members (including different generations of members). For example, the plan is pre-funded to ensure that money is set aside through approximately equal member and employer contributions to fund current and future plan benefits. And your trustees aim to maintain stable contribution rates to ensure all plan members, current and future alike, receive similar value.
Your plan is healthy and fully funded
The 2017 Annual Report depicts a maturing, yet fully funded, pension plan with approximately 123,000 members, $29.2 billion in assets and a five-year annualized investment return of 10.2 per cent (12.8 per cent in the most recent reporting period). It also describes a representative board of trustees which aims for fairness in its decisions and prudent, responsible, long-term investing of your plan’s pension fund.
Watch for a future BOOM! post to learn more about the environmental, social and governance matters taken into account when considering pension fund investments.
Claude Marchessault is the Executive Director of the Public Service Pension Plan of British Columbia