OTPP posts surplus, but warns of clouds ahead

The Ontario Teachers’ Pension Plan rang up a surplus for the second year in a row in 2014.

However, demographics and geopolitical uncertainty continue to challenge Canada’s largest single profession pension plan.

“Navigating through these waters is not an easy task,” said Ron Mock, the chief executive of Teachers, who added the impact of oil prices and other commodities as a current challenge.

“It’s really important that we stay focused on paying pensions,” he said.

The pension plan earned $16.3-billion in investment income last year, for a return of 11.8%. The results beat the fund manager’s benchmark of 10.1%. The surplus is $6.8-billion and the plan was 104% funded at the start of the year based on current contribution and benefit levels.

The results were achieved “in spite of market turmoil,” Mr. Mock said.

During a presentation from the plan manager’s Toronto headquarters Tuesday, executives said low oil prices could present buying opportunities, and a potential shift from derivatives to real assets over the next three to five years.

On other fronts, Canada’s large pension plans continue to face competition from sovereign wealth funds and other large money managers, whose activity in the private markets has pushed up the price of infrastructure and real estate investments.

Neil Petroff, the chief investment officer of the manager of the $154.5-billion fund, announced this week that he will be retiring after 22 years at Teachers.

“His contribution to Teachers … it’s been immeasurable,” Mr. Mock said.

Mr. Petroff, whose mother is a retired teacher, said he expects the pension manager to open a new international office to continue to pursue global investments in the nottoo-distant future, most likely in South America. Teachers already has offices in London and Hong Kong.

Longevity of plan members has at times been among the greatest challenges for Teachers, and led to adjustments in funding and benefits.

Canada’s oldest citizen, at 112 years old, is collecting a pension from the Ontario Teachers’ plan, according to Tracy Abel, the plan’s senior vice-president of member services.

“She has been receiving a pension for almost 50 years,” Ms. Abel said.

There are less than two teachers for every retiree, compared to four in 1990, and the number of expected years on a pension has climbed to 31 from 25.

Since the plan’s inception in 1990, total investment income has accounted for 78% of the funding of member pensions, with the other 22% coming from member and government contributions.

Navigating through these waters is not an easy task