When an average person considers their life expectancy, they will typically look at variables such as their own personal habits and family history to anticipate their individual life expectancy. Actuaries evaluate life expectancies much in the same way, but on a substantially larger scale using a broader range of statistics and specific sets of variables to conceive and then create a “mortality table” applicable to varying population demographics. A recent study of the Canada wide mortality rates yielded the first mortality table for pensioner life expectancies using only Canadian data; this table has been named the 2014 Canadian Pensioners’ Mortality Table (CPM14).
The 2014 Canadian Pensioners’ Mortality Table
The promulgation of this new table comes into effect Canada wide on October 1st, 2015 for determining Commuted Values of pension benefits for all pension plan members. The study revealed increased life expectancy when using Canadian mortality experience exclusively, as opposed to previous North American mortality studies which primarily use American statistics. The major impact of this new table is that increased life expectancy yields larger Commuted Values for pension plan members who are terminating membership. The following table provides the approximate increase ratios for Commuted Values of pension benefits for the varying demographic of plan members based on standard assumptions applicable to many1 Canadian administered pension plans.
The values in the above table are the relative dollar increases in cost incurred by a terminating member as a result of replacing the previous mortality table with the new CPM14 mortality table. For example:
$1,000 of commuted value payable to this member under the previous table will be$1,057 of commuted value payable to this member under the new CPM14 Table.
Plan sponsors should anticipate greater liabilities associated with membership terminations and terminating plan members should expect increased lump sum value for accrued lifetime pension benefits. The ultimate outcome of replacing outdated rates with the new CPM14 mortality table is the implementation of current statistics and up-to-date methods for determining life expectancies and Commuted Values.
For more information regarding the implications of the new mortality table, please contact us.
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