The Ontario Teachers’ Pension Plan (OTPP) is reporting an 18% rate of return for 2003.

OTPP says Net assets increased to $75.7 billion from $66.2 billion in 2002. Income from investments was the highest ever at $11.4 billion.

“We were surprised at the strength of the markets this year. All asset classes performed very well for us in 2003, significantly outperforming market benchmarks,” said Claude Lamoureux, president and CEO, in a news release “We also increased investments in infrastructure, private equity and alternative investments in our continued search for value.”

The pension plan’s one-year rate of return of 18% was 4.5% above the composite benchmark of 13.5%. OTPP says he difference between the actual return and the benchmark represents $2.7 billion in value created by the investment team.

The plan’s long-term rate of return has averaged 11.1% per year since the fund was created in 1990.

Equity investments represented 46% of the fund; inflation sensitive investments, including real estate, real-return bonds and infrastructure, were 28%, and fixed income, including hedge funds, completed the remaining 26%.

Pension payments of $3.2 billion continued to exceed the $1.4 billion in contributions from teachers and the Ontario government during the year. The number of pensioners grew to 93,000 with 5,500 teachers starting pension during 2003, compared to 6,800 in 2002.

In spite of strong investment returns in 2003, for the first time since 1990 the pension plan’s actuarial funding valuation shows a $6.2 billion shortfall of assets compared to the cost of future benefits.

“The cost of future pensions increased substantially due largely to a decline in real interest rates which have a dramatic impact on pension costs for all defined benefit plans,” said Lamoureux. “In the early 1990s, real interest rates were in the 5% range — at the end of 2003, they had dropped to 2.8%. This shift in rates, combined with other changes, has added approximately 35% to the plan’s cost of future benefits — a factor totally beyond our control.”

The OTTP is responsible for investing the fund’s assets and administering the pensions of Ontario’s 155,000 elementary and secondary school teachers and 93,000 retired teachers.