Lower interest rates inflating federal pension costs: Morneau

Heading into 2020 and beyond, the outlook for interest rates is impacting the federal government’s projected pension obligations and its budgetary balance.

In its 2019 fall economic update on Monday, the government reduced the projected budgetary balance by $4.2 billion in 2019/20 and $11.6 billion in 2024/25. While the balance projections aren’t entirely related to pension obligations, the update emphasized the increased expenses around actuarial re-evaluations of public sector employee pensions and other future benefits.

These expenses include “veterans programs and Royal Canadian Mounted Police disability programs, health-care and dental care benefits for pensioners, as well as a number of smaller benefit plans,” the update said. It noted the government calculates its future obligations for these benefits based on year-end interest rates.

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Finance Minister Bill Morneau stressed the government’s positive outlook for Canada’s economic landscape, putting particular emphasis on solid job and wage growth. “You’re seeing that low interest rates make pension liabilities higher and that creates the financial presentation that we’ve shown,” he told a press scrum.

The update also noted that, while it’s important for the government to be transparent about the results of actuarial re-evaluations of its pension obligations, they can “result in large swings in the budgetary balance, which have the potential to obscure underlying trends in government spending and can make prudent fiscal management more challenging.”

In an effort to tackle this volatility, the government said it intends to consult on ways to contextualize its pension obligations within its budgetary reporting. The update mentioned one potential method: showing actuarial gains or losses as a separate line item in the reporting framework, as opposed to showing the movements as part of overall program expenses.

Read: Veterans Affairs accused of skipping consultations on Pensions for Life