Bank of Canada revises rates for real return bonds

On May 10, 2021, the Bank of Canada exceptionally and retroactively revised the V39057 and V122553 rates for real return bond data starting June 1, 2020. These rates are used to calculate commuted values for indexed pensions during the deferral period or after retirement, e.g., for calculating a membership termination value or for an actuarial valuation on a solvency basis for plans offering indexed pensions.

The Bank of Canada’s rate revision has an impact on the calculation of commuted values of indexed pensions with calculation dates from July 1, 2020 to April 30, 2021. Since the rates have been revised downward, the resulting commuted values may be higher.

The rate revision also has some repercussions on some interest rates used for financial situations estimations and actuarial valuations on a solvency basis with calculation dates from June 1, 2020 to March 31, 2021. Solvency ratios may end up being lower by using the revised rates.

On May 26, 2021, the CIA published an Explanatory Report to guide pension plan stakeholders in their reflections and decision-making on this matter.

For commuted values, the CIA recommends three courses of action:

• Values already paid: no recalculation necessary
• Values that have been communicated but not paid: no recalculation necessary
• Values that have not been communicated: calculations based on the revised rates

For solvency valuations, the CIA recommends that actuaries determine if they should use the revised rates based on the engagement, the purpose of the work and the moment they became aware of the event.

While key government authorities have not yet taken a position on this matter, their guidelines could be more restrictive than the CIA’s.

For more information about this topic, contact your Normandin Beaudry consultant or email us.