As I reflect on OPB’s 25th year, I am proud of the organization’s sound track record. Our approach has been careful and deliberate, and we’ve never lost sight of our fiduciary responsibility, the best interests of our stakeholders, and protecting the long-term sustainability of the Plan. Most notably, over the last 25 years, OPB’s average annual compound rate of return is 8.6%, and that has been achieved while maintaining one of the lowest expense ratios in the industry.

I am pleased to say that the PSPP ended 2014 in a very strong financial position. Robust investment returns over the past three years, combined with low inflation and salary restraint, have led to continued improvement in the Plan’s funded position. The Plan is now more than 98% funded, up from what was reported in our two previous valuations filed with the regulator (96% in 2013, and 94% in 2010).

As part of our proactive approach to managing the Plan, we completed a long-term funding study in 2014. The results of that study suggest that the current contribution rates are sufficient at this time. That said, we do see some challenges on the horizon. Investment markets have had a good run in recent years, and we know that buoyant markets don’t last forever. People are also living longer and that drives pension costs higher. On the other hand, salary restraint in the public service is keeping the growth of pension costs below expectation. As always, our focus is on protecting the long-term sustainability and affordability of the Plan and so, given the ever changing environment, we will continue to focus on capital preservation and will conduct another long-term funding study in a couple of years to keep on top of changing trends.

Expense management

Over the years, OPB has managed its expenses strategically and responsibly. As a result, our expense ratio is among the lowest in the industry. Our cost-conscious approach has earned OPB a reputation as a responsible and respected government agency. We will continue to keep a close eye on expenses to ensure we maximize the return on any spend we make on key initiatives.

While ensuring operating costs are managed astutely, OPB continues to move forward with strategies that support the fulfillment of our mandate and vision. Critical to our future success are strategic investments in people, processes and technology to ensure that:

• assets are managed to provide superior risk-adjusted returns over the long term;
• the Plan remains sustainable and affordable – which in turn ensures contribution rates and benefit levels remain relatively stable over time; and
• clients understand the value of the Plan and participate fully in decisions they make about their pension benefits.

Infrastructure renewal

As part of our cost-constraint measures, OPB has restrained spending on information technology (IT) infrastructure and core applications since 2008. As a result, some of our systems have been stretched to the maximum extent possible and are now nearing end-of-life. To continue operating efficiently, effectively and to enhance security, OPB needs to make a “generational” investment in IT over the coming years.

The breadth, depth and sophistication of our investment activities is increasing rapidly. We continue to drive forward with enhancements to our Investments program. As we bring more of the investment management role in-house, we need specialized technology to support our Investments team and to ensure that we have appropriate internal controls, oversight and risk management in place. Given the time-sensitive nature of investment transactions, we also need adequate back-up for critical IT systems to ensure that we can continue to operate despite unexpected disruptions.

IT renewal is about keeping pace with an increasingly sophisticated Investments program, keeping our client data safe and secure, meeting the demands of clients who are increasingly expecting seamless online transactions and capabilities, and ensuring that our employees are working with the hardware and software they need to deliver effective and efficient client service.

During the past year, we added a Chief Technology Officer to the executive team to lead the development of an IT strategy and guide us through the renewal process. The IT strategy will be a five-year technology plan that supports OPB’s investment and pension operations. The plan will enable us to renew our technology systems at a pace that manages expense levels, maximizes value, minimizes risks, and addresses OPB’s critical business needs.

Managing change

Over the last five years, OPB has gone through significant organizational change. We have:

• built a talented and agile Investments team to generate superior risk-adjusted returns, as well as an Investment Finance team capable of ensuring our internal controls, oversight and risk management keep pace with our Investments program; and
• introduced a leading-edge service delivery model that raises the bar for pension client service experience.

Our organization, leadership and people have shown great resiliency throughout the process. Despite the implementation of a service delivery model that required significant staff restructuring and retraining, we continued to receive strong scores for service excellence from CEM Benchmarking Inc. (a leading pension administration benchmarking firm). Our scores dipped in 2014 – as a result of a temporary service deterioration in our Client Care Centre. That is not unusual for an organization that has undertaken transformational change. Our Client Services team recovered very well and our service level is now significantly better than ever.

Asset pooling

Throughout 2014, OPB continued to work with the Government of Ontario and the Workplace Safety and Insurance Board (WSIB) to lay the groundwork for the creation of a new investment entity to manage our respective assets. In a global investment environment, scale can be an important contributor to consistently strong investment returns net of expenses. We believe asset pooling could boost OPB’s annual returns by one quarter of one percent or more. An annual increase of just one quarter of one percent would generate an estimated $2 billion in additional net investment income over the next 15 years.

Over the past five years, we’ve built an outstanding Investments team, added a range of new asset classes, adjusted our Strategic Asset Allocation, introduced Tactical Asset Allocation, made a highly successful move into infrastructure and private equity, while also earning a reputation as a respected investment partner. OPB is very well positioned to generate the returns needed to meet the pension promise, with or without asset pooling.

Preparing for the future

I am extremely proud of all that OPB has accomplished over the past 25 years. We have successfully preserved the pension promise and elevated our service to world-class levels. And we have done this while maintaining benefit levels for our members and retirees and keeping contribution rates reasonable and affordable.

I want to thank the Board, the leadership team and all employees for their dedication, commitment and hard work to get us where we are today. We will continue to Think Forward as we prepare for the next 25 years.

Mark J. Fuller
President & CEO