OSFI Superintendent and Chief Actuary reflect on unique challenges associated with regulating pension plans
December 27, 2024
The Superintendent and Chief Actuary of the Office of the Superintendent of Financial Institutions (OSFI) reflected on the unique challenges associated with regulating pension plans at a recent joint public appearance.
In addition to federally regulated pensions, OSFI is also responsible for the regulation of banks, other deposit-taking financial institutions and insurance companies.
Superintendent Peter Routledge explained that their focus is guided by the longer-term nature of pension plan assets.
“We need to look further ahead when monitoring the risk environment of pension plans,” he said. “Geopolitical and environmental, social, and governance, including climate, risks are more significant when you take a long-term view.”
For a plan like the CPP, Chief Actuary Assia Billig said that its valuation projections extend over a 75-year period.
“When we develop assumptions for the CPP actuarial valuations and when we illustrate the uncertainty of results, we concentrate on the long-term risks such as demographic risks (fertility, immigration and mortality), labour market risks (for example impacts of AI and climate change), and investment risks,” she said. “That is, we are looking at long-term risks on both sides of the balance sheet: liabilities and investments.”
The pair also touched on the difficulties associated with quantifying climate transition risk. Pensions are not required to follow OSFI’s Guideline B-15 on Climate Risk Management for financial institutions or to complete a Standardized Climate Scenario Exercise, Routledge noted.
However, they are expected to follow the Canadian Association of Pension Supervisory Authorities’ Risk Management Guideline, which says that climate risk scenario analysis can be a useful exercise for plan administrators or investment managers to assess their fund’s vulnerabilities.
“Climate risk scenario analysis can also be used to incorporate and assess potential effects of changes in plan liabilities,” Routledge added.
Click on more information below to read the full transcript of the discussion:
