Revisions to subsection 3540 of CIA Standards of Practice | Commuted value of indexed pensions

On September 14, the Canadian Institute of Actuaries issued revisions to subsection 3540 of its Standards of Practice on the economic assumptions to use when determining pension commuted values.

Given that Government of Canada long-term real return bond yields fell below zero for the first time in 2020, the CIA modified the formula for calculating prescribed interest rates. The aim is to prevent certain anomalies from occurring when determining commuted values for pensions indexed during the deferral period or after retirement.

The application of this modification on historical data shows that it would have generally reduced the value of the benefits of members whose pension is not in payment.

The CIA also added a floor of zero to be applied to non-indexed interest rates to prevent the use of negative rates when determining pension commuted values.

The final version of subsection 3540 will be effective February 1, 2022. Early implementation is not permitted. This will give administrators time to adjust their systems in order to comply with the new calculation methods. It should be noted that this revision comes less than a year after the full amendment of Section 3500 of the Standards of Practice (see our January 2020 bulletin).

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