Exposure Draft Regarding the Determination of Pension Commuted Values in Economic Environments where Bond Yields are Negative

Publication date: 29-05-2021

Version: Archived

Language available: Bilingual

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This exposure draft (ED) proposes changes to Section 3500 of the Standards of Practice, which applies to the actuary’s advice on the computation of commuted values with respect to pension plans.

Since January 2021, yields on Government of Canada (GoC) long-term real return bonds have increased from lows experienced in the months leading up to November 2020, and, at the time of this ED’s publication, are above zero again. Yields on GoC non-indexed bonds have also increased since that time. Some may believe the issue identified in the NOI has therefore disappeared and/or reductions in GoC bond yields are unlikely in the near term. But negative yields persist in real return bonds with shorter maturities and in bonds issued by governments of other countries. Negative yields on long term bonds could recur in Canada. Even if negative yields on long-term real bonds do not recur, in conducting its research, the DG concluded that an adjustment to the approach for calculating the commuted value standard’s pension escalation assumption would be appropriate. The DG believes it remains prudent to adjust the formula for r7 and to do so reasonably promptly.

Categories: Practice

Types: Standards of Practice

Topics: Pensions

Pages: 30

Format: PDF

Accession no.: 221056