Why the actuarial industry has failed us
Actuaries monitor trillions of our dollars in pension funds. They use advanced mathematics to determine how likely a pension fund will be able to meet its pension obligations in the future. They are well paid. They are all likely denying the CPP’s “gigantic” surplus to protect their at-risk, lucrative industry.
This denial is because their industry is seriously threatened by CPP Investments’ outstanding investment success. The numbers are astounding. If CPP Investments continues to average an 11.6% return, a 25-year-old contributing the maximum of $6,332 in 2022 will have as much as $6 million in his personal CPP fund at age 65. And if the 11.6% return continues after age 65, he will have a $700,000 “pension”, with $6 million remaining in his estate on his passing.
How much will inflation reduce this pension? A 1.7% inflation rate over 40 years halves the buying power of $700,000.
This means a 25-year-old’s “pension” will likely be $350,000 per year, in 2022 dollars.
With the CPP alone providing such a large pension, why would there be a need for any other pension funds? Hence, why would there be a need for actuaries, the watchdogs of pension funds? The actuarial industry realizes CPP Investments’ outstanding investment success could lead towards their extinction. That is likely why the ten top actuaries who have been consulted have all denied the $257 billion surplus with baseless arguments. There are only 5,400 actuaries in Canada but this deceit regarding the true status of the CPP has been instrumental in keeping CPP benefits from millions of struggling Canadians and the anemic Canadian economy.
Our Chief Actuary, who we all pay to monitor the CPP, is the most complicit in this cover-up. When asked to comment on the CPP’s irrefutable $257 billion surplus, he responded with “The CPP is not in surplus” and “No comment”. This statement is somewhat like your father, if he earned a million dollar salary, saying “Sorry. I have no money to buy you a new bicycle.”
Moreover, our Chief Actuary’s most recent 217-page 30th Actuarial Report never mentions the word surplus, even though the $550 billion fund is now $257 billion above his requirements for fund stability. Oxford dictionaries defines “surplus” as “an amount of something left over when requirements have been met”.
The need for a CPP Board of Governors
All pension experts agree. The actuary responsible for reporting on billions of stakeholders’ dollars contributed, must be subject to intense scrutiny from the fund’s Board of Governors. It is comprised of representative stakeholders, mostly contributors and pensioners, like you and me.
In the corporate world, investors want a robust monitored Board of Governors who, hopefully, represent them and monitor their investment with extreme care. The screen capture below shows this.
Because it is so big, the CPP has a structure that calls for two Boards. Firstly, the Board of Governors of CPP Investments, comprised of 12 high level investment experts, needs little scrutiny. This is because CPP Investments is likely the best pension fund investor in the world. Their mandate is to invest wisely and successfully and nothing else.
A second CPP Board of Governors would scrutinize the Chief Actuary’s reporting and then possibly recommend a surplus distribution, contribution amount change or pension amount change. The CPP has no such second Board of Governors. The Chief Actuary has full rein and he is deceiving millions of Canadians with deceptive reporting.
If the CPP had a Board of Governors that represents contributors and pensioners, they would likely
Distribute roughly $170 billion of the $257 billion surplus.
Invest all contributors’ first $2,000 in contributions per year directly with CPP Investments, likely giving a 25-year-old $1.7 million more by age 65 and helping to solve spiraling income inequality.
Demand the resignation of the current, deceptive Chief Actuary, hire a responsible actuary, and scrutinize all his reporting carefully.
Our Chief Actuary may be the worst forecaster in Canada. Since 2009, in three reports, he has averaged a 185% error in forecasting investment return. It gets worse. In 2019, he reduced his forecast for the next 75 years from 6.3% to 6.0% when CPP Investments, probably the best pension fund investor in the world, had averaged 11% for the last 11 years. This perpetual error has helped our Chief Actuary bury the CPP’s gigantic surplus and deprive 17 million Canadians of a deserved $170 billion.
An accurate forecast of investment returns is crucial. Respected pension expert, Jim Keohane, oversaw the Healthcare of Ontario Pension Plan (HOOPP) for many years. HOOPP has had investment success similar to CPP Investments. However, unlike the CPP, HOOPP’s Board of Governors includes many contributors and pensioners. Because the HOOPP fund had accumulated a large surplus, the HOOPP Board of Governors increased all pensions by $4,900 per year on Jan. 1 , 2018.
Mr. Keohane has stated
“If you use any discount rate [forecasted return] other than the best estimate of future returns on the portfolio you are going to overfund or underfund the obligation which brings up a whole series of intergenerational fairness issues”.
What is an example of intergenerational unfairness? Because the CPP has no Board of Governors, roughly 150,000 pensioners are dying every year without seeing any of their fair share of the CPP’s surplus, $15,000 each, on average.
Twenty million members of the CPP deserve a CPP Board of Governors, predominantly composed of contributors and pensioners. It would meet annually. All discussions would be recorded and placed on the internet. A website and a hotline should be established to explain how as much as 10% of Canadians’ lifetime earnings are being treated. Feedback, comments and surveys should be encouraged. This ideal situation is a huge distance from what we now have - a suspicious, uncommunicative, deceptive, single Chief Actuary who has full rein.
The asset/Expenditure (A/E) ratio
The A/E ratio is an excellent indicator of a pension plan’s health. The assets are the fund’s size on Dec. 31. The expenditures are the total pensions paid to pensioners in the next year. The image below is from page 37 of the 25th Actuarial Report. It states that “financial sustainability of the Plan” will be maintained if the A/E ratio follows the graph’s line to 2085.
The graph below shows the actual and projected A/E ratio to 2030, presuming a 10.8% return.
CPP Investments has already doubled the A/E ratio requirement for fund stability. Presuming an ongoing 10.8% return, by 2050 it will more than ten times the requirement. By 2085, it will be well over 100 times the requirement. This ratio gives a true representation of a pension fund’s sustainability. The Asset/Expenditure ratio won’t let our deceptive Chief Actuary bury the CPP’s “gigantic” surplus.
Even if the CPP distributed a $170 billion surplus payment, the A/E ratio would still be 36% above the Chief Actuary’s target for 2085.
Moreover, the target for 2085 presumes CPP Investments will only maintain a 6.3% return, not the 11% return it has achieved for the last 11 years. This proves that our grandchildren’s pensions would be at almost zero-risk even with a $170 billion surplus distribution.
A mysteriously reluctant icon
Keith Ambaschtsheer is Director Emeritus of the International Centre for Pension Management (ICPM). He devoted 82 pages to “Pension Governance” in his recently published book The Future of Pension Management. The 82 pages virtually demand that every pension fund have a Board of Governors, mostly comprised of contributors and pensioners. Page 70 states
“Board members must be collegial, representative and make a collective commitment to understand and fairly balance stakeholder interests.”
Mr. Ambaschtsheer would be ideal as a member of a CPP Board of Governors, joining representative contributors and pensioners like you and me. When asked if he was interested in being a member, he refused, saying “I am just a humble financial economist”. It should be very disturbing to Canadians when a top pension expert, who has written 82 pages on the need for a Board of Governors, refuses to be a member of a CPP Board of Governors, citing inadequate qualifications.
Our Auditor-General has been jettisoned
Virtually every government department, every mid to large size business, every non-profit, and every charitable organization must be audited by an external auditor who risks his reputation if he falsely reports. Almost all these organizations have assets that are nowhere near 1% of the CPP’s $550 billion in assets, which is our money, not the government’s.
Yet the CPP is likely the only organization that is not audited. Instead, actuaries refused an audit and demanded a peer review, likely claiming their science is too complex for a mere accountant.
Our Auditor General frequently reviews public sector pension plans like those for members of the RCMP and National Defence. His review contains these logical, encouraging words.
“According to best practices, properly designed governance should focus on implementing the principles of fairness, accountability, and responsibility to all stakeholders.”
Recall, for example, the sponsorship scandal.
“The scandal involved the misappropriation of millions of dollars of taxpayers’ money that had been illegally channeled into the pockets of advertising executives and others close to the Quebec wing of the Liberal Party.”
Who was crucial in determining the guilt of the Liberal Party?
“In early 2004, Auditor General Sheila Fraser delivered a damning report, finding that approximately $100 million, in the form of fees and commissions, had been paid to advertising and communications companies operating in Quebec, often for work that was not even done.”
It was the work of our Auditor General that revealed this $100 million scandal to Canadians. The size of the CPP scandal is $170 billion, 1,700 times as much. And, unlike the sponsorship scandal, it is money coming directly out of our pockets, not the general government account.
Ontario’s Auditor-General, Bonnie Lysyk, should audit the CPP because she does not answer to politicians. In her December 2021 report, she bravely accused Premier Ford of vetoing legislation that would benefit the smaller investor while reducing the profits of the investment industry. She stated that “intense lobbying” has been “a significant contributing factor”, resulting in smaller investors losing $13.7 billion since 2016.
Ms. Lysyk’s report confirms three things related to the CPP:
The financial industry uses “intense lobbying” to sway politicians to legislate in their favour. In this case, lobbying has cost the smaller investor $13.7 billion while increasing the profit of the financial industry by $13.7 billion. It is likely that, with $13.7 billion at stake, the lobbyists made secret large donations to the Conservative Party and/or Mr. Ford.
Politicians can be swayed by lobbyists to ignore smaller investors, even though they will lose thousands of votes.
Mr. Ford, who constantly alludes to protecting “the little guy”, is a hypocrite.
If Ms. Lysyk audited the CPP, you would probably be soon receiving a deserved CPP surplus payments.
What did Ms. Lysyk mean by “intense lobbying”? Did the lobbyist yell at Mr. Ford? Did he spill coffee on him? Or did he simply say,
“The consequence of not listening to us will be a withdrawal of our legal and secret donations to your political party and you.”
Such a statement explains Mr. Ford’s behaviour. And the amount of the donation may be substantial with $13.7 billion at stake. He may have said to himself
“Because I am abusing smaller investors, I will lose some votes. However, I need to keep that gravy train of secret and legal donations going, so why not abuse a few smaller investors.”
The CPP and our deceptive Chief Actuary need to be audited by a fearless auditor like Ms. Lysyk, who solely represents the interests of Canadians and is willing to reveal how lobbying is depriving millions of “little guys” of billions of deserved dollars.
The peer review - a “bromance of colleagues”
Actuaries defend themselves by saying there is a peer review of our Chief Actuary’s assessment of the CPP. However, it is, as one candid top actuary stated to me, a “bromance of colleagues”, a friendly rubber stamp devoid of criticism. He also stated,
“As a member of the actuarial community, I am not allowed to publicly criticize other actuaries.”
What good is a peer review of the CPP if peers are not allowed to criticize each other? After reviewing several peer review reports, I can confirm that, since 2010, no peer review of the CPP has ever criticized our Chief Actuary’s grossly flawed reporting.
Imagine the state of our democracy if all our MPs stated “As an MP, I am not allowed to publicly criticize other MPs”.
An unsuccessful attempt from a top pension expert
Because I emailed several politicians about the CPP’s surplus, top pension expert Malcolm Hamilton contacted me in 2019. We met for four hours in person and then exchanged lengthy emails that resulted in roughly 40 hours of time spent by each of us.
Using vacuous arguments, Mr. Hamilton attempted to convince me that the CPP does not have a surplus. It is difficult to convince a Professor of Finance that 2+2=5. It is difficult to claim there is no surplus when there is an irrefutable $257 surplus. Mr. Hamilton could not provide any viable reasons to NOT distribute $170 billion of the CPP’s surplus.
Why would a top Canadian actuary spend 40 hours trying to convince me that there is no surplus? Was it to protect his at-risk industry that could be decimated because the CPP could evolve into the only pension fund needed in Canada?
The C.D. Howe Institute is a think tank that refuses to reveal who funds them, according Transparency International. The institute recently published a disgraceful misinformation paper with the heading “Uncertainties loom for the Canada Pension Plan”, claiming our CPP pensions may be in jeopardy. It is packed with deception and mistruths. Mr. Hamilton has worked for the C.D. Howe Institute.
Is this who you want monitoring 10% of your lifetime earnings?
One top actuary I contacted, likely in a moment of conscience, stated the truth. He said our Chief Actuary
“has done what pension actuaries frequently do - invent measures that are easily manipulated so that actuaries can control the narrative and hide things at will.
I must remain anonymous because actuaries are not supposed to criticize other actuaries.”
As someone who has studied the CPP for over five years, I heartily concur with this disappointing assessment of our Chief Actuary.
Twenty million Canadians have as much as 10% of their lifetime earnings monitored by a Chief Actuary who:
“invents measures, manipulates data, controls the narrative, and hides things at will”,
denies an irrefutable $257 billion surplus,
forecasts using a 5.5 % return for CPP Investments when they have averaged 11% for nine years, thereby burying the surplus,
does not report to a representative Board of Trustees,
is not audited,
is only peer-reviewed by actuaries who “are not allowed to publicly criticize other actuaries”,
is depriving 17 million Canadians of a deserved $170 billion,
is depriving our sputtering economy of a needed $170 billion stimulation,
is depriving our deficit of a $50 billion reduction,
is preventing a logical solution to mushrooming income inequality.
To summarize, an actuarial fox is guarding our CPP henhouse, which holds trillions of our hard-earned dollars. There are zero checks and balances.
For these reasons, some of the analysis on this website is based on the 25th Actuarial Report, published in 2010. In 2010, there was no surplus and no need to “control the narrative and hide things at will”. Since then, our Chief Actuary has skillfully buried the surplus in subsequent reports. Moreover, from 2016 to 2022, ten top Canadian actuaries have denied the surplus with vacuous arguments. Finally, our Chief Actuary’s four forecasts of all other issues combined that are related to the fund’s status have been virtually identical for the next 70 years.
The impact of our Chief Actuary’s deception is disastrous. For many Canadians, the CPP is their only savings for retirement. Roughly 75,000 pensioners are dying every year without seeing any of their fair share of the surplus, as much as $25,000 each. Two million seniors now live near the poverty line of $21,000 in income per year. Their deserved surplus payment would probably ten-tuple their discretionary income remaining after rent and day-to-day expenses have been paid.
Depriving just one senior of a deserved $25,000 is a tragedy. Depriving three million seniors of a deserved $44 billion is a catastrophe.
How can a respected country like Canada permit and condone such a tragedy? How can we deprive three million seniors of a deserved $44 billion and 14 million working Canadians of a deserved $126 billion?
The actuarial industry needs to gracefully accept their possible decline in job opportunities and not rob millions of Canadians of billions of deserved dollars. Consider other industries. Robots took factory workers’ jobs. ATM’s took tellers’ jobs. Online stores are taking retail workers’ jobs.
Regrettably, the impending decline of the actuarial industry is different. Actuaries, not management, report on the status of the CPP. If they all informally agree to deny an obvious, giant surplus, the news of the CPP’s surplus will never reach the public. Moreover, as explained elsewhere, the complicit Canadian media has never published anything on the CPP’s gigantic surplus and potential. Finally, the complicit financial industry is likely supplying funds to maintain the secrecy on the CPP’s surplus.
The actuarial industry does not want the news of the CPP’s surplus revealed for a second reason. The news would reveal that a deceptive Chief Actuary has hoodwinked Canadians for years. Millions of Canadians have a second pension fund, which holds as much as $2 million of their contributions. Members of these plans might demand much more scrutinized reporting and possibly a reduction in actuary’s fees.
There is more pension injustice in Canada. Almost all public sector employees, 25% of Canada’s work force, will retire with a pension that is as much as 70% of their final income. The average public sector worker income is $75,000 per year. Senior public sector workers near retirement would average an income much higher than $75,000. This means the average public sector pension is roughly $60,000 per year.
Because of employer matching, these generous $60,000 pensions are half paid for by by all Canadians. Meanwhile, the average CPP pension is only $8,600 per year. Compare a $60,000 pension, half paid for by all Canadians, to a CPP pension of $8,600, completely paid for by you and your employer. By denying the CPP’s irrefutable $257 billion surplus, our Chief Actuary is worsening this already unjust pension situation in Canada.
Beware of the pay-as-you-go argument
One top actuary tried to maintain the CPP has no surplus with the following argument.
There are two types of pension funds – those funded on an open group basis, known as a pay-as-you-go plan, and those funded on a closed group basis. The CPP is funded on an open group basis. This means some of your contributions are invested on your behalf and some of your contributions are used to pay pensioners.
The closed group pension plan is necessary for businesses because they can go bankrupt. If their fund is not 100% funded, pensioners, like those of Sears and Nortel, will be shortchanged. If a closed group fund is 100% funded at bankruptcy time, it will meet all pension obligations, if the specified investment return, roughly 6%, is achieved.
The open group basis is appropriate for the CPP because Canada will never go bankrupt. The CPP will always have a considerable number of employed contributors, now 14 million, and hence, considerable contributions to the CPP.
The Chief Actuary agrees. His most recent 30th Actuarial Report states on page 178:
“If the base Plan’s financial sustainability is to be measured based on its asset excess or shortfall, it should be done on an open group basis that reflects the partially funded nature of the base Plan, that is, its reliance on both future contributions and invested assets as means of financing its future expenditures.”
In 2021, the contributions totaled $56 billion, the pension payments totaled $49 billion, and the investment return was $74 billion, resulting in a net fund increase of $81 billion. Meanwhile, to fund our great grandchildren’s pensions, our Chief Actuary has stated he only needed a fund increase of $25 billion in 2021 .
This means the fund increased by $56 billion more than our Chief Actuary’s target for 2021 alone.
A debate could clear up confusion
Perhaps the most concrete proof of a cover-up by actuaries is their refusal to engage in a debate. CARP members, for example, would receive $1.7 billion from a CPP surplus distribution. Members are likely confused as they receive conflicting statements from me and CARP headquarters.
This confusion could be easily cleared up. Often CARP holds webinars. CARP could monitor a debate with me against any actuary. CARP has refused to arrange such a debate likely because the financial industry has “encouraged” them to never mention the CPP.
There is a second reason that CARP is not holding a debate. No actuary will come forward. No actuary wants to try to oppose the contents of this website. What actuary wants to claim the CPP does not have an irrefutable $257 billion surplus and 17 million Canadians do not deserve $10,000 each, on average. He would be very unpopular and likely judged as suspicious and foolish. Moreover, such a debate might lead to an increased scrutiny on all pension funds and all actuary’s income.
I have debated on the CPP for 40 hours with top actuary, Malcolm Hamilton. His lack of viable arguments proves that a surplus distribution is completely justified and the actuarial industry is denying the surplus to protect their at-risk industry,