Statement to 1818 Society Annual Meeting, October 11, 2005 by Stephen Eccles, PFC member Good afternoon. You will no doubt be happy to learn that I have nothing dramatic to report about the financing of your pensions. In the past full year – September 2004 through August 2005 – financial markets continued recovering. Our welldiversified benchmark indices climbed by 12.4 per cent. The Pension Fund managed to do considerably better than that, achieving a 14.1 per cent return over the same period. The investment staff thus deserve our praise for adding about $200 million to the value of our portfolio, largely by selecting better than average investment managers. If you look only at the first 8 months of this calendar year, however, markets have been much more difficult. We will be lucky if our assets grow by 8 percent this year. Nevertheless, by the end of June, 2005, we passed one milestone: our total assets have at last reached a new alltime high - $11.55 billion – surpassing their previous high point before the market bubble collapsed in 1999/2000. However, future investment prospects do not look particularly bright. We will do well to keep up with the growth in fund liabilities – which are the present value of future pension payments. The fact is that those liabilities continue their inexorable growth, irrespective of our investment performance. For example, when our assets were last $11.5 billion, at the end of 1999, our liabilities were only $9.4 billion. As I have just said, our assets are now back at that $11.5 billion level, but in the meantime our liabilities have risen to $13.2 billion. The result is that our funded ratio – assets over liabilities – has been below 1.0 since 2001. It is slowly recovering, from its low of 0.82 to the present 0.92. There is thus some way to go before we can be satisfied. One result of the decline in the funded ratio was the resumption of annual payments by the Bank Group into the pension fund. In May this year, the Pension Finance Committee required the Bank Group to make payments totaling $245 million in the current budget year. Payments of similar amounts will almost certainly be needed in the years immediately ahead. In closing this overview, I should re-emphasize that the funded ratio used above is far more conservative than those used by most commercial entities. If we used commercial definitions, our funded ratio would be well above 1.0. In somewhat over-simplistic and catastrophic terms, this means that – even if the Bank were to cease operations, or for any reason decided to terminate the pension plan – there would be enough funds already put aside in our pension trust fund to fully pay for all our pensions. This is a totally different situation than that faced by the many large commercial pension funds that we seem to be reading about in the press every day and which – judging by the e-mails I receive – cause pensioners to seek reassurance on this point. I suggest that we leave any questions until after the pension staff has presented more details. Thank you.