Counterparty risk represents the credit risk from current and potential exposure related to transactions involving derivative contracts, securities lending and borrowing as well as securities repurchase and reverse repurchase agreements. At initial recognition, PSPIB evaluates the facts and circumstances related to a transaction to confirm that the transaction price represents the fair value of an asset or a liability. Private markets consist of investments in real estate, private equity, infrastructure and natural resources. Management has determined that the amendment will not have an impact on the financial statements. To mitigate this risk, PSPIB may take, through foreign forward contracts or cross currency swaps, positions in foreign currencies. The PSSA requires that all pension obligations arising from the plan be met. Derivative financial instruments can be listed or traded OTC. As at March 31, 2018, 103 investment entity subsidiaries were incorporated in North America, 23 in Europe, 11 in Oceania, 4 in Central and South America, 1 in Africa and 1 in Asia (103 in North America, 23 in Europe, 10 in Oceania, 4 in Central and South America, 1 in Africa and 1 in Asia as at March 31, 2017). Table 5 shows the annualized interest rate credited for the past 10 years. In the case of traded financial assets, they are recorded as of the trade date. Management, through the activities of PSPIB, assesses control, joint control and significant influence with respect to the investees disclosed in Note 7 as follows: It is determined that PSPIB has control over an investee when it is exposed, or has rights, to variable returns from its investment in an entity and has the ability to affect those returns through its power over the investee. 2, such as contributions, benefits, and interest credits, are recorded in the RCA accounts, which are maintained in the accounts of Canada. This amount is presented before collateral held and netting arrangements that do not qualify for offsetting under IFRS. It gives plan members, parliamentarians, and the public information on how the Government of Canada managed this plan in the 2017 to 2018 fiscal year. A summary of these arrangements is provided in Note 23 to the financial statements. 2019.03.04 MP3 - 6 Mb. The valuation process is monitored and governed by an internal valuation committee (VC). Pursuant to pension legislation, the transactions for funded and unfunded pension benefits are tracked in the pension accounts in the accounts of Canada. The following explains the fluctuations in administrative expenses shown in Figure 10. The result of this comparison is either an actuarial surplus or an actuarial deficit. The performance of such financial instruments is evaluated on a fair value basis and they are classified at fair value through profit or loss (FVTPL). Benefit payments, refunds to former members and transfer payments to other plans are recorded in the period in which they are paid. Listed derivative financial instruments are recorded at fair value using quoted market prices that are based on the most representative price within the bid-ask spread. PSPIB is party to repurchase and reverse repurchase agreements. Benefits earned are accrued as employees render pensionable services. This committee is responsible for overseeing all aspects of fair value determination. Report on the Public Service Pension Plan for the Fiscal Year Ended March 31, 2018 (PDF, 2,551 KB) Her Excellency the Right Honourable Julie Payette, C.C., C.M.M., C.O.M., C.Q., C.D. To support the plan, we have recently strengthened our governance with the approval of a formal funding policy for the public sector pension plans. It is determined that PSPIB is party to a joint venture arrangement when it has joint control over an investee and has rights to the net assets of the investee. Actuarial shortfalls found between the balance in the RCA accounts and the actuarial liabilities are credited to the RCA accounts in equal instalments over a period of up to 15 years. Over the past year, we have been making significant progress toward improving and modernizing our systems, tools and practices. Other fixed income securities consist of asset-backed term notes (ABTNs) and mortgage-backed securities. Excludes deferred annuities that became payable at age 60. In the case of the securities lending program, PSPIB’s exposure to counterparty risk is further mitigated as the custodian of the securities lent assumes the risk that a counterparty will be unable to meet its obligations associated with the collateral requirements. PSPP is a program for statistical analysis of sampled data. Such prices are determined using the most representative price within a spread of dealer quotations. The plan is the largest of its kind in Canada in terms of total membership, covering nearly all employees of the Government of Canada. Forwards are contracts involving the sale by one party and the purchase by another party of a predefined amount of an underlying instrument, at a predefined price and at a predefined date in the future. This excludes fund investments where a sensitivity analysis is not possible given the underlying assumptions used are not available to PSPIB. The capital raised is primarily used to finance private market investments. In my opinion, the transactions of the public service pension plan that have come to my notice during my audit of the financial statements have, in all significant respects, been in accordance with the Public Service Superannuation Act and regulations, the Public Sector Pension Investment Board Act and regulations and the by-laws of the Public Sector Pension Investment Board. Financial Statements. I conducted my audit in accordance with Canadian generally accepted auditing standards. RCA No. For enquiries, contact us. Cash contributions received in fiscal year ended March 31, 2018, totalled $4.8 billion ($4.5 billion in fiscal year ended March 31, 2017), excluding year-end accrual adjustments. Transactions pertaining to Retirement Compensation Arrangement No. Starting in 2016, the increase in the PSPIB’s operating expenses has stemmed primarily from the growth in the assets under its management. Futures are standardized contracts to take or make delivery of an asset (buy or sell) at a predefined price and predefined future date. As at March 31, 2018, the pension plan’s maximum exposure to credit risk amounted to $46 billion ($40 billion as at March 31, 2017). We also welcomed Elana Hagi to the Board. Includes spouse or common-law partner, children and students. All cash collateral is reinvested. As a credit mitigation technique, the ISDA Master Agreement contractually binds counterparties to close-out netting provisions in the case of default by one of the counterparties. The investment income of the pension plan is presented for each major class of financial assets and liabilities and is comprised of 2 categories: interest and dividends, and net unrealized and realized gains (losses). In order for the government to track transactions made through the CRF, the superannuation account records contributions, benefit payments, interest and transfers that pertain to service before April 1, 2000. In accordance with its mandate, the PSPIB’s statutory objectives are to manage the funds transferred to it in the best interests of the contributors and beneficiaries, and to invest its assets with a view to achieving a maximum rate of return without undue risk of loss, having regard to the funding, policies and requirements of the pension plan. Inflation-linked bonds are fixed income securities that earn inflation‑adjusted returns. SRP Annual Report This document is a yearly financial report on the Plan. These techniques use significant inputs that are observable in the market such as current market yields. This ensures that sufficient cash reserves are available to meet forecasted cash outflows. The Office of the Auditor General of Canada is responsible for conducting performance audits and studies of federal departments and agencies. Contributions for current service are recorded in the year in which the related payroll costs are incurred. This report would not be complete without the work of the pension plan’s administrator, Public Services and Procurement Canada. PSPIB reviews the fair value received and, where necessary, the impact of restrictions on the sale or redemption of such investments is taken into consideration. President of the Treasury Board and Minister of Digital Government. Fair values of government and most corporate bonds, inflation-linked bonds and mortgage-backed securities are based on prices obtained from third-party pricing sources. In certain cases, such agreements also allow for offsetting. PSPIB utilizes appropriate measures and controls to monitor liquidity risk in order to ensure that there is sufficient liquidity to meet financial obligations as they come due. Annual Report 2018. Amendments were made to the Public Service Superannuation Act, including changes aimed at improving plan management and introducing the Public Sector Pension Investment Board Act. 1 (no adjustment in 2017), and no adjustment was made to RCA No. Retirement compensation arrangements (RCAs) are not consolidated in the financial statements of the pension plan and are disclosed in Note 23. The Secretariat continues to ensure that the plan provides fair, appropriate and affordable benefits, and remains sustainable. PSPIB participates in securities lending and borrowing programs whereby it lends and borrows securities in order to enhance portfolio returns. PSPIB uses stress testing and scenario analysis to examine the impact on financial results of abnormally large movements in risk factors. There will be no requirement for actuarial adjustment payments in the fiscal year ended March 31, 2019, based on the new triennial actuarial valuation that was tabled in Parliament on November 2, 2018. Treasury Board of Canada Secretariat, To the President of the Treasury Board and the Minister of Public Services and Procurement and Accessibility. The Retirement Compensation Arrangements Account is credited with interest quarterly at the same rates as those credited to the Public Service Superannuation Account. Similarly, management fees related to investments in private markets and private debt securities are not paid directly by PSPIB. Pursuant to Section 4600, PSPIB’s subsidiaries that are formed to hold investments or those that provide PSPIB with services that relate to its investment activities are consolidated since these entities are not considered investment assets. To reflect the Income Tax Act restrictions on registered pension plan benefits, separate retirement compensation arrangements (RCAs) have been implemented to provide benefits that exceed the limits established in the Income Tax Act. To the extent that IFRS in Part I are inconsistent with Section 4600, Section 4600 takes precedence. PSPIB is required to act in the best interests of the contributors and beneficiaries under the pension plan and for maximizing returns without undue risk of loss. These sums were transferred to other registered pension plans, to locked‑in retirement savings vehicles or to financial institutions to purchase annuities. A portion of such instruments has maturities of 90 days or less and is held to meet short term financial commitments. Public Services and Procurement Canada, Original signed Adjustments for transactions completed after year-end with an effective date before March 31. The increase in administrative expenses in 2015 and 2016 was due to an increase in system maintenance costs. These initiatives include: The first act entitling certain public service employees to retirement income came into effect. In fiscal year ended March 31, 2018, transfers in and out of the plan under these agreements were as follows: Under the authority of the Special Retirement Arrangements Act, separate Retirement Compensation Arrangements No. For each investment, the relevant valuation methodology is applied consistently over time as appropriate in the prevailing circumstances. Joint control is established through a contractual arrangement which requires the unanimous consent of the parties sharing control for the activities that significantly affect the returns of the arrangement. Information in connection with collateral pledged by PSPIB and its counterparties is disclosed in Note 6(D). Such prices are determined using either an appropriate interest rate curve with a spread associated with the credit quality of the issuer or other generally accepted pricing methodologies. 2015 Annual Report Posted: July 26, 2016. The actuarial assumptions used to value the pension obligations pertaining to the RCA accounts are consistent in all respects with those used for the superannuation account. APS achieved an overall member satisfaction score of 81%, an increase from 2016’s overall score of 78%, surpassing the target satisfaction score set at 75%. Such debt securities take the form of senior debt, mezzanine and distressed debt and primary and secondary investments in leveraged loans. Counterparties are generally authorized to sell, repledge or otherwise use collateral held. Monetary assets and liabilities that are denominated in foreign currencies are translated at the functional currency rate of exchange prevailing at the end of the reporting period. PSPIB’s investment objectives are: The pension plan’s capital consists of the actuarial funding surplus or deficit determined regularly by the actuarial funding valuation prepared by the OCA. Cash contributions in Figure 4 include both current service and past service (for example, service buybacks, pension transfers). The terms to maturity of PSPIB’s capital market debt financing are disclosed in Note 11(B). During the year ended March 31, 2018, floating rate notes were reclassified out of other fixed income securities and into government and corporate bonds in order to better reflect their nature and common characteristics. Infrastructure investments focus on entities engaged in the management, ownership or operation of assets in energy, transportation and other regulated businesses. PSPIB may enter into investment transactions with government-related entities in the normal course of its business, more specifically, as part of private markets and certain fixed income investments described under Note 6 (A). Interest rate risk refers to the risk that fluctuations in interest rates will directly affect the fair value of the pension plan’s net asset values. Over the past 10 years, the PSPIB has recorded a net annualized rate of return of 7.1%, compared with the long-term return objective of 5.8% over the same period. This change does not impact pension payments to current retired members or their survivors, nor does it impact future benefits of active plan members. In 2018, 72.6% of PSPIB’s costs of operation were allocated to the public service pension plan (72.5% in 2017). These credit facilities were not drawn upon as at March 31, 2018, and March 31, 2017. In November, the Board once again approved 100% inflation protection for implementation on April 1, 2019. Pursuant to the Public Pensions Reporting Act, the President of Treasury Board directs the Chief Actuary of Canada to conduct an actuarial valuation for funding purposes at least every 3 years. Part of my work as Chief Human Resources Officer has been to strengthen the funding governance for the pension plan and the broader oversight role provided by the Treasury Board of Canada Secretariat. PSPIB investment assets and investment-related liabilities are reflected directly in the pension plan’s financial statements. Such prices are determined using an interest rate curve with a spread consistent with PSPIB’s credit quality. As an actuary with more than 20 years of For fiscal year ended March 31, 2018, the Public Sector Pension Investment Board (PSPIB) reported a net rate of return of 9.8% (12.8% in fiscal year ended March 31, 2017), compared with the benchmark rate of return of 8.7% (11.9% in fiscal year ended March 31, 2017). During the year ended March 31, 2018, listed equity securities with a fair value of $31 million, classified as Level 2 as at March 31, 2017 were transferred to Level 1 as a result of trading restrictions having expired. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. That is, the risk that the issuer of a debt security or that the counterparty to a derivative contract, to a securities lending and borrowing transaction or to securities purchased under reverse repurchase agreements, is unable to meet its financial obligations. In fiscal year ended March 31, 2017, the PSPIB’s cost ratio increased to 70.5 cents per $100 of average net investment assets, up from 63.0 cents per $100 in fiscal year ended March 31, 2016. This program allows PSPIB to issue short-term promissory notes and medium-term notes. Secretary of the Treasury Board 2016 Annual Report Posted: July 26, 2017. If quoted market prices are not available, then fair value is estimated using valuation techniques based on inputs existing at the end of the reporting period that are derived from observable market data. For details, see the “Summary of plan benefits” section. The 10-year annual growth rate of cash contributions from both the employer and plan members was 3.3%. Feedback can be sent to: board@pspp.ca. For fiscal year ended March 31, 2018, the value of pension obligations was $207.6 billion ($204.7 billion in fiscal year ended March 31, 2017), an increase of $2.9 billion from the previous fiscal year. Certificates of deposit and bankers’ acceptances are recorded at cost plus accrued interest, which approximates their fair value given their short-term nature. Chief Human Resources Officer. I would like to thank Canada’s federal employees for their ongoing and dedicated service, and for giving us a world-class public service of which we can all be proud. 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. PSPIB determines whether a transfer between levels has occurred and recognizes such transfer at the beginning of the reporting period. Natural resources investments are presented net of all third-party financing. See Note 14 for additional information on pension obligations. ox 6000 Fredericton, N E3 5H1 anada ISN: 978-1-4605-1338-5 Contributions relating to service since April 1, 2000, are recorded in the Public Service Pension Fund in the Public Accounts of Canada. The Superannuation Account does not consist of cash or marketable securities. In its implementation of the public sector purchase programme (PSPP), the Eurosystem conducts purchases in a gradual and broad-based manner, aiming to achieve market neutrality in order to avoid interfering with the market price formation mechanism. Since PSPIB is a Crown corporation, it is considered to be a government-related entity. Additional information, as required, is obtained from the Public Sector Pension Investment Board (PSPIB). There is no impact from the requirements relating to impairment and hedge accounting. Figure 8 shows the rate of return on the assets held by the PSPIB against its comparative benchmark for the last 10 years. 2 (no adjustment in 2017) to cover actuarial deficiencies. Investment-related expenses of $96 million were incurred by PSPIB’s investment entity subsidiaries for the year ended March 31, 2018 ($40 million for the year ended March 31, 2017). To date, PSPIB has not received any claims or made any payment for such indemnities. Download pspp4windows for free. In certain cases fair value is obtained from information provided by the fund’s administrators and is reviewed by PSPIB to ensure reasonableness and adherence to acceptable industry valuation methods. The terms to maturity of the notional amount of derivatives are disclosed in Note 6(B). The pension plan serves 607,587 active and retired members, including survivors and deferred annuitants. Collateral transactions are conducted under terms that are usual and customary in standard securities lending and borrowing programs. In 2018, the net value of assets reached $111.1 billion, which can be broken down as follows: Figure 9 presents the net value of public service pension plan assets held by the PSPIB each year for the last 10 years. These regulations were established under the Special Retirement Arrangements Act for the purpose of paying benefits and established the Retirement Compensation Arrangements for the payment of benefits. The interest is credited quarterly at rates calculated as though the net cash flows were invested quarterly in 20-year Government of Canada bonds issued at prescribed rates and held to maturity. Private debt securities are fixed income securities of private companies held directly or through private funds. Rights are issued only for a short period of time, after which they expire. The PSPIB’s board of directors has established an investment policy with an expected real rate of return at least equal to the return assumption used to fund the plan, which at March 31, 2018, was set at an annual real return of 3.3% for the next 10 years, reaching an annual real return of 4.0% after that. In order to minimize counterparty risk, PSPIB requires that counterparties provide adequate collateral and meet its credit rating requirements. The Public Service Superannuation Act was amended to allow pension plan member contribution rates to be gradually increased to reach a 50:50 employer‑employee cost‑sharing ratio by the end of 2017. The significant actuarial assumptions used in measuring the pension obligations are found in Note 14. To date, PSPIB has not received any claims nor made any payments for such indemnities. PSPIB has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows to a third party, PSPIB has transferred substantially all the risks and rewards of the asset, or. 2017 Annual Report Posted: November 27, 2017. Obligations to repurchase or resell the securities sold or purchased under such agreements are recorded at cost plus accrued interest, which due to their short-term maturity, approximates fair value. The costs related to these services are charged to the pension plan. The absolute volatility is a statistical measure of the size of changes in investment returns of a given investment or portfolio of investments. Adjustments for previous year correction. The payable balance reflects the obligation of the transferee to return cash collateral to the transferor at the end of the transaction in the absence of an event of default by the transferor. In the event of a member's death, the Plan provides income for survivors and eligible children. In my opinion, the financial statements present fairly, in all material respects, the financial position of the public service pension plan as at 31 March 2018, 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. PSPIB is exposed to currency risk through holding of investments that is, direct and indirect holdings of securities, units in pooled funds and units in limited partnerships or, investment-related liabilities in various currencies. Such funds hold fixed income securities among other types of instruments. The CSA also requires PSPIB to contribute further collateral when requested. In fiscal year ended March 31, 2018, the public service pension plan paid out $7.4 billion in benefits, which represents an increase of $255 million over the previous year. The PSP Board is committed to good governance and promotes transparency in the information we share with members, pensioners and employers. PSPIB qualifies as an investment entity as defined under IFRS 10 Consolidated Financial Statements and forms part of the pension plan reporting entity. Includes deferred annual allowances. Valuation methodologies established are based on widely recognized practices that are consistent with professional appraisal standards. Any portion of a transfer value that exceeds the limit set by the Income Tax Act is paid in a lump sum and is taxable. The funds received are invested with a view of achieving a maximum rate of return, without undue risk of loss, having regard to the funding, policies and requirements of the pension plan under the PSSA and the ability of the pension plan to meet its financial obligations. I am pleased to present the Report on the Public Service Pension Plan for the Fiscal Year Ended March 31, 2018. The minimum fair value of cash collateral required is equal to 102% of the fair value of the securities lent, and in the case of securities collateral 105%. Fluctuations in the relative value of the Canadian dollar against these foreign currencies can result in a positive or a negative effect on the fair value of the investments. Includes transfer values, returns of contributions, amounts transferred to other pension plans under pension transfer agreements and amounts transferred under the Pension Benefits Division Act. PSPIB is exposed to credit risk, which is the risk of non-performance of a debtor on whom PSPIB relies to fulfill contractual or financial obligations. The Public Service Superannuation Act requires that any actuarial deficit be dealt with by transferring equal instalments to the pension fund over a period of up to 15 years, starting in the year in which the actuarial report is tabled in Parliament. 1 provides for benefits in excess of those permitted under the Income Tax Act for registered pension plans. LATVIJAS BANKA: ANNUAL REPORT 2018 5 FOREWORD The year 2018 saw rapid economic expansion all over the world, yet there were also some strong headwinds, including the one stemming from the US–China trade tensions, the UK's decision to leave the EU and severe financial market turbulences. Health Canada is reimbursed for the costs related to medical examinations required for members that elect to purchase prior service and for members who retire on medical grounds under the pension plan. The government’s contribution is made monthly to provide for the cost (net of plan member contributions) of the benefits that have accrued in respect of that month at a rate determined by the President of the Treasury Board. In certain cases, PSPIB does not have control over an investee but has the power to participate in the financial and operating policy decisions of the investee. 1, Retirement Compensation Arrangements Regulations, No. ANNUAL REPORT 2018 4 PPP.PENONC.CA Plan highlights The plan by the numbers (as at March 31, 2018) MEMBERSHIP INVESTMENTS FEMALE ˇ˘% MALE % TOTAL PLAN NET ASSETS RETIRED , ˘ INACTIVE , ˇ ACTIVE , TOTAL 127,294 MEMBERSHIP RATIO $31.6 billion RETIREE STATISTICS 22 years Average pensionable service (new retirees) 61 years Average retirement age To ensure you receive email notifications for new issues, please log in to mypensionplan.ca and sign up to "Go Green".
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