Pension Funds Offer Source Of Financing
Ottawa should encourage widespread investment in existing and new infrastructure by institutional investors, such as pension plans and insurers, says a report from the C.D. Howe Institute. In ‘New and Improved: How to Bring Institutional Investment into Public Infrastructure,’ Benjamin Dachis, associate director of research at the institute and author of the report, says “Canadian governments are on the verge of the largest infrastructure spending increases in decades, to the tune of hundreds of billions of dollars. And institutional investors, like Canada’s seven biggest public pension funds, have invested $87 billion of their $1 trillion-plus in assets in infrastructure but mostly abroad. It’s time for governments to tap into this enormous source of financing.” Canadian and foreign institutional investors would likely place a high value on Canadian user-fee financed infrastructure, but Canadian governments have opened few opportunities for such investment. The report also argues that government ownership of infrastructure has led to inefficient management, poor project selection, and higher risks on taxpayers disguised by low government borrowing costs.
Responsible Investing Obstacles Fading
Traditional obstacles to responsible investing are fading, says State Street research, which includes the belief that fiduciary duty does not allow for non-standard investment decisions. It found just 10 per cent of survey respondents say they viewed fiduciary duty as a barrier to ESG integration and 44 per cent of asset owners and asset managers agreed that the concept of fiduciary duty is shifting towards encouraging ESG integration. However, 35 per cent of institutional investors still believe ESG equals lower returns. One significant barrier does remain ‒ the lack of transparent, standardized, and quality data. The research found that 60 per cent of respondents said a lack of industry standards for measuring ESG performance was a significant barrier to full integration.
Financial Issues Impact Performance
The International Foundation of Employee Benefit Plans’ ‘A Closer Look: What’s Working in Workplace Financial Education’ survey report shows 96 per cent of employers indicated employees’ personal financial issues had some sort of impact on their overall job performance. However, by offering financial education in the workplace in an impactful way, employers can counter the detrimental effects of financial distress. The most effective recipe for a successful financial education program is a mix of leadership support, patience, and customization. Customization is also key for successful financial education programs. Employers with successful programs conduct an employee survey to assess both their financial well-being and which financial topics need to be covered. Nearly 30 per cent of employers with successful programs have conducted an assessment. None of the employers with unsuccessful programs had.
Primary Concerns Shift
The primary concerns of firms working in asset management such as disruption from robo-advice and the challenge of managing alternatives have all receded over the past year to make way for worries connected to political change, says a survey from Linedata. It found the Brexit vote, the election of Donald Trump, and the possibility of a swing towards right wing populism in Europe have become the year’s defining trend in the eyes of asset managers and related firms such as custody banks across all geographies. Cybercrime, the dominant concern last year with a 33 per cent score, fell to 18 per cent this year as last year’s main concerns have been “comprehensively relegated to second-tier issues.” Nearly a quarter of respondents highlighted political and policy change as the primary disruptive force in asset management: a concern that did not even rank in last year’s survey.
Tool Makes Online Submission More Secure
Equitable Life is launching an online tool that provides plan administrators and plan members with a more secure and convenient way to submit administrative documents and disability forms electronically. “In a few simple steps, plan members and plan administrators can upload documents and files directly from their browser to our secure online portal – 24 hours a day, seven days a week,” says Norma Crouse, assistant vice-president, claims and administration at Equitable Life. “They can submit multiple documents at once and they can view their most recent document submission history.” The submission tool allows plan administrators and third-party administrators (TPAs) to upload plan member and dependent data in a safe and secure environment while maximizing administrative efficiency. A number of different types of forms and documents can be submitted such as administrative documents including applications, change forms, banking forms, and booklet reorder forms; disability forms and documentation; health estimates and claim resubmissions; and dental estimates and claim resubmissions.
MacDonald Has New Role
Rubin Delivers Keynote
Jeff Rubin, a leading economist, energy expert, and author, will deliver the opening keynote address at the ‘2017 RIA Conference.’ In his session, ‘Risky Business: The Economics of Climate Change and the Global Energy Sector,’ he will share insights on how carbon emissions reduction efforts pose an ever-increasing threat to the recovery in fossil fuel prices needed to keep today’s oil and coal production economic. It takes place June 1 and 2 in Vancouver, BC. For information, visit RIA 2017
Options Lacking For Retirement Pooling
Canadian participants in defined contribution plans have few options after retirement that take advantage of pooling for investments and risk, says an Association of Canadian Pension Management (ACPM) white paper. ‘Decumulation, The Next Critical Frontier: Improvements for Defined Contribution and Capital Accumulation Plans’ says life income funds and registered retirement income funds, the most used Canadian post-retirement investment vehicles under the country’s tax law, do not pool investment and longevity risk; do not realize economies of scale to reduce administrative and investment costs; and do not offer simple investment menus with limited choice and appropriate defaults. Canadian DC plan participants who have financial guidance, options, and protections during the accumulation phase lose those at retirement as they enter the decumulation phase, says the paper. It recommends that DC plan sponsors, service providers, regulators, and governments develop best-practice decumulation guides, including provisions for investment advice. It also suggests that provincial and federal legislation be changed to allow for deferred annuitization after age 71, when DC participants are required to withdraw assets from plans, and for longevity risk pooling. The white paper is at ACPM Decumulation
Education Linked To Savings Behaviour
Higher levels of educational attainment are estimated to directly increase the savings and wealth accumulation of Canadians, even after taking into account income and other personal characteristics known to indirectly affect savings behaviour, says a study from Statistics Canada. ‘The effects of education on Canadians’ retirement savings behaviour’ takes into account the various ways that education may indirectly affect savings, including family composition, labour earnings and permanent income, home values, and health. Completing high school increases savings rates in tax-preferred retirement accounts by two to six percentage points annually, on average, among individuals aged 20 to 59. The study also shows that individuals with more schooling tend to have a better understanding of financial market concepts, such as how inflation affects the future value of savings and the relative risks of different savings options.
Sustainable Strategies Continue To Grow
The amount of assets in sustainable investment strategies continues to grow globally, albeit at a slower pace than previous years, says the Global Sustainable Investment Alliance’s biennial report. Canada had $1.09 trillion in sustainable assets under management (AUM) at the start of 2016, up 49 per cent. In comparison, Europe had $12.04 trillion, up 12 per cent from 2014; and the U.S., $8.72 trillion, up 33 per cent. The report attributes Canada’s growth in sustainable AUM to money managers’ increasing focus on sustainable investing, an increasing awareness of ESG long-term risks and opportunities, Canadian pension funds’ rising assets, and the rise of millennial investors who are more likely to consider ESG factors in their investment decision-making. The most common sustainable investing strategies globally remain negative/exclusionary screening.
Bill Expands RAMQ Powers
Bill 92, which expands the powers of the Régie de l’assurance maladie du Québec (RAMQ), should enable the RAMQ to better perform its control and oversight role, in particular to prevent invoicing errors and fraud, says a Willis Towers Watson ‘Clients Advisory.’ Moreover, the inspection powers it has been granted extend to the entire drug marketing chain, from the manufacturer and all intermediaries to the pharmacist. For private drug insurance plan sponsors, Bill 92 marks the start of a new phase in the control of drug costs. What remains to be seen is how pharmacists will implement the obligation to issue detailed invoices and how they will handle drugs that are not on the RAMQ drug list, it says. Invoices given to Quebec members will likely be different from those issued in other provinces as the law requires information not usually included in invoices issued by pharmacists (such as wholesalers’ profit margins). However, the obligation for the pharmacy to issue an itemized invoice will create greater transparency regarding drug prices. Therefore, in Quebec, insurers and administrators of benefit plans may start offering price comparison tools similar to those available in other provinces.
Needs Of Pensioners Not Addressed
While the federal budget commits large financial resources to many social issues that are in need of resolve, it fails to address the needs of pensioners, says the National Pensioners Federation. Seniors were mentioned 20 times in the budget; much less than other societal groups like women (276 mentions), children (79 mentions), First Nations (181 mentions), and veterans (90 mentions). While, these mentions do not indicate how many dollars are being allocated, it is difficult to give the Liberal government a ‘pat on the back” for addressing the issues of aging Canadians. After all, seniors have less time to wait for necessary improvements in housing, healthcare, income security, and a more equitable distribution of wealth, it says.
Lifestyle In Retirement Can Be Maintained
Seventy-eight per cent of U.S. investors think they will have enough money to maintain the lifestyle they want in retirement, up from 69 per cent in 2014, says the Wells Fargo/Gallop ‘Investor and Retirement Optimism Index.’ In fact, 31 per cent feel highly confident, up from 26 per cent, and those who are not confident have fallen from 31 per cent to 22 per cent. A factor that helps people attain this confidence is having a written plan as 43 per cent of those with a written plan are highly confident they are headed towards a comfortable retirement, whereas 23 per cent of those without a written plan feel highly confident. As well, only 36 per cent worry they will outlive their savings, down from 46 per cent.
Trainor Has New Role
Natasha Trainor (CFA) is chief investment officer at Provident10, which is responsible for investment management and plan administration of the Newfoundland and Labrador Public Service Pension Plan. Previously, she was manager of pension investments for the Government of Newfoundland and Labrador, Department of Finance. She joined the province in November of 2009 from AGF Management Ltd.
MEPP Study Highlights Presented
PBI Actuarial Consultants will present highlights from its ‘Apples & Oranges National MEPP Benchmarking Study.’ The study compares contribution rates, benefit rates, and risk-taking effectiveness for over 50 plans across Canada. It takes place April 19 in Toronto, ON. For information, visit MEPP Study
Canadians Feel Financially Unwell
Two in five Canadians say they are financially unwell, says the Manulife Financial ‘Wellness Index.’ Respondents are concerned by debt (82 per cent), not saving for retirement (60 per cent), stressed (67 per cent) due to their financial situation, and 83 per cent said they are not financially prepared to protect their loved ones in the event of their death, serious illness, or disability. “We want to help Canadians live better and healthier lives. Looking at people’s wellness has traditionally included physical aspects and, in recent years, focused more on emotional health,” says Sue Reibel, executive vice-president and general manager, institutional markets, at Manulife. “Our findings show that the role of financial wellness, whether good or bad, affects overall wellbeing and is an important contributor to helping Canadians reach positive emotional health.” Its research shows that money continues to be the greatest source of stress and it impacts an individual’s mental health leading to absenteeism rates and lost productivity. Canadians who consider themselves financially unwell revealed that dealing with money is a factor of stress and those who are financially unwell are eight times more likely to have bad stress levels and may be distracted at work.
PST Charged On Insurance Premiums
Though the Saskatchewan Budget for 2017/18 signals little impact regarding benefit plans, there was some surprising news, says a Mercer ‘Response.’ As of July 1, provincial sales tax (PST) will be charged to insurance premiums. Employers in the province and with employees in the province will need to add the additional cost to their list of considerations when designing their benefits plans. As well, there were also some changes in insurance coverage provided by the province. While low-income residents remain covered by the government, others will need to rely on the private system to support their needs. A third area focused on program reductions and employees who had once relied on the government provided programs will now have to turn to the marketplace to fill the gap. While employers continue to weigh value to their employees and cost to their organization, changes in government support add more complexity to an already complex area. What seems like incremental changes and increases can have major impacts on employer health benefits strategies, it says. The PST on insurance premiums includes all life, accident, and health insurance programs.
OMERS Involved In Meter Business
MapleCo ‒ an independent meter asset provider, backed by Borealis Infrastructure, the infrastructure investment manager of OMERS; the Ontario Teachers’ Pension Plan ‒ and SSE plc will fund the purchase and installation of 2.7 million SSE smart meters which will be deployed from March 2017 onwards. SGN Smart will provide management services and resources to MapleCo for implementation and its on-going operation. Smart meters are part of the UK government’s plan to update and modernize its energy system. This new generation of smart gas and electric meters will give customers greater control of their energy consumption by providing accurate and near real-time information on energy use and costs.
Jung Joins Willis Towers Watson
Panel Looks At Recent Events
Julie Cays, chief investment officer at the CAAT Pension Plan; Kevin Hebner, managing director at Global Portfolio Management; and Eric Lascelles, chief economist at RBC Global Asset Management Inc.; will discuss the implication of recent events such as Brexit and the election of Donald Trump in the U.S. on financial markets in 2017 and beyond at the CPBI Ontario ‘Investment Trends Seminar.’ It takes place May 3 in Toronto, ON. For information, visit Investment Trends
UK Pension Age Should Go Up Faster
A faster increase in the state pension age, an end to guaranteed increases of pension benefits, and a midlife check to help people take stock of their work, health, and retirement have been recommended in a final report reviewing the UK state pension age. The report, by the government’s independent reviewer John Cridland, recommends that the state pension age increase to 68 over a two-year period starting in 2037. That is a faster pace than the current planned increase to 68 over a two-year period starting in 2044. The current state pension age is 65, rising to 66 by 2020 and 67 by 2028. The current guarantee to increase the state pension benefits every year by one of three factors ‒ the higher of inflation, average earnings, or a minimum of 2.5 per cent ‒ should be scrapped, it says. This would see state pension spending fall to 5.9 per cent of gross domestic product by 2067 fiscal year, compared with the current projection of 6.7 per cent. A midlife check should be introduced as a trigger point to encourage people to take stock and make realistic choices about work, health and retirement.
Budget Changes Maternity Leave
Changes to EI benefits for maternity leave are among the highlights of the 2017 federal budget, says Simon Laxon, a senior consultant at Willis Towers Watson. In the article ‘Federal Liberals Table 2017 Budget’ at the Benefits and Pensions Monitor website, he outlines these and other changes of interest to employer benefit plan sponsors.
Morneau Shepell Partners On Expat Assistance
Morneau Shepell and the Immigration Industry Association (IIA) have launched an expat assistance program that provides welfare, guidance, and support services to expats, migrants and people considering migrating. The strategic alliance between the two organizations builds on the IIA’s commitment to ensuring that expats and visa holders are supported throughout their transition from one country to another. The program will be available to all members of the IIA and their clients. Expats’ main concerns include leaving family behind, moving to new countries and being supported by local communities, integrating into new cultures, and having family support during the transition process. The services provided by Morneau Shepell will alleviate some of the concerns experienced by individuals and families transitioning to their new life.
Hedge Fund Managers Change Fee Structures
Hedge fund managers seeking to rebuild investor confidence in the wake of a challenging 2016 are responding with changes to their fee structures, says a Preqin survey. Three-quarters are willing to reduce their fees and many intend to spend more on marketing in the year ahead in a bid to overcome investor skepticism about the value of investing in hedge funds. Average management fees dropped to 1.51 per cent among funds incepted in 2016, down from 1.57 per cent in 2014 and 2015. Just 26 per cent of managers revealed that they were not prepared to reduce their fees. Ten per cent are prepared to reduce performance fees, 37 per cent would reduce their management fees, and 27 per cent are open to reducing both. Performance and investor demands for more favourable fees were cited by 73 per cent and 64 per cent of fund managers respectively as key drivers of change facing the industry in 2017.
Catalano Has New Duties
Michaud Speaks At CPBI Forum
Jean Michaud, managing director and senior commodity strategist at Core Commodity Management, will examine ‘Should Institutional Investors Divest From Carbon?’ at ‘CPBI FORUM 2017.’ In another session, Tyler Amell, of Morneau Shepell Work & Health, will look at ‘The Impact of Chronic Disease on Health, Productivity and Engagement.’ It takes place June 5 to 7 in Winnipeg, MB. For information, visit FORUM 2017
Commitment To Mental Health Increased
While the ‘2017 Federal Budget, Building a Strong Middle Class’ was notably silent on pension topics ‒ including next steps for reform of the Canada Pension Plan ‒ it did contain some announcements of interest to employers and benefits plan sponsors, says an Eckler ‘Special Notice.’ It promises investments of $5 billion over 10 years in mental health initiatives. This funding is expected to provide better access to mental health support for as many as 500,000 young Canadians under age 25. Given the high cost of mental health to the Canadian economy (an estimated $50 billion annually) and to employers (more than $6 billion in lost productivity in 2011), funding that produces measurable improvements in mental health is good news. Improved access to mental health support could translate into higher productivity and lower absenteeism for employers, it says. As well, the Canada Infrastructure Bank (CIB) – an arm’s length organization that will work with provincial, territorial, municipal, Indigenous, and private sector investment partners to change how Canada plans, funds, and delivers infrastructure ‒ will be operational in late 2017. Since many pension plans have exposure to Canadian infrastructure in their investment portfolios to diversify their holdings and earn additional return, this is a positive sign that the infrastructure market continues to grow. Ultimately, the proposed CIB could positively impact the availability of infrastructure investments in Canada. The budget also says due to declining popularity – attributed to the proliferation of higher-yielding alternative retail investment instruments like GICs – the government will discontinue the sale of Canada Savings Bonds in 2017.
PSP Settles Hedge Fund Suit
The Public Sector Pension Investment Board (PSP) and hedge fund firm Saba Capital Management have settled a lawsuit in which PSP claimed Saba had falsified the value of bond holdings before the pension fund sought to redeem a $500 million investment. ocuments filed in New York Supreme Court by PSP in September 2015 claimed the firm “improperly manipulated the values” of bond assets within the Saba Offshore Feeder Fund, “with the objective of artificially depressing the amount to be paid to the board.” Saba agreed to the full redemption, but a month later PSP claimed it “abruptly marked the bonds back up to the values they recorded immediately prior to the redemption … to stanch further investor defections from the fund and to directly benefit themselves.”
CPPIB Monitors Climate Change
The Canada Pension Plan Investment Board (CPPIB) is monitoring new developments and will evolve its climate change approach over time. It will also continue to put resources toward understanding climate change risks and opportunities across its portfolio because it thinks it makes investment sense. This approach is consistent with seeking to achieve a maximum rate of return. It calls climate change one of the most significant physical, social, technological, and economic challenges of this time. Its impacts are expected to be pervasive and dynamic creating physical and transition risks such as water scarcity, biodiversity, extreme weather, and policy and market risks, as well as investment opportunities in areas such as technological innovation and renewable energies. Climate change has been a focus area for its sustainable investing team for the last decade. Its strategy is multi-faceted and includes engagement, integration, and diversification.
New Forces Shape Healthcare
New forces are shaping healthcare, says Luc Vilandré, vice-president and chief operating officer at TELUS Health. He told the ‘2017 Telus Health Conference’ that these include the changing demographics due to an aging population, consumer empowerment which is also prompting a shift in health outcomes from volume to value-based funding, and new entrants who are disrupting the status quo. The industry can choose to remain passive about these, however, he said it is better to take the lead and be proactive. This may require providers to reinvent themselves. However, technology is not a solution to do so, it is simply an enabler of these changes.
Iceland Lifts Pension Fund Restrictions
The Central Bank of Iceland has lifted restrictions on foreign investment for pension funds in the country. The controls were put in place in 2008 following the country’s banking crisis. The Central Bank of Iceland has made a number of amendments over recent years, slowly increasing the level of foreign investment permitted by pension funds. The bank says it is now possible to make the changes because “the risk of balance of payments disequilibrium that could cause monetary, exchange rate, or financial instability has diminished significantly in the past year.”
Deterrence Reduces Benefits Fraud
Deterrence is an important part of reducing benefits plan fraud, says Daniel Tourangeau, a partner at LBC Meaden & Moore International. He told the ‘2017 Telus Health Conference’ session ‘Healthcare Fraud: Technologies are Part of the Solution’ that employers need to do something to send a clear signal and the failure to do so can encourage dysfunctional behavior. In fact, he said they should consider advising authorities and attempting to recover funds paid incorrectly. In many cases, fraud by plan members is due to a feeling of entitlement. People believe benefits are part of compensation and they should be able to draw income from them. However, the principal that it does not hurt anyone is dangerous. Employers could lose a competitive advantage to attract or retain employees if they are forced to reduce coverage due to cost increases resulting from fraud. In many ways, technology made it easier to commit this fraud, but he warned against designing claims processes just to target those committing fraud. Instead, insurers should develop strong prevention, detection, and deterrence programs to protect the integrity of benefits plans and employers must collaborate and support initiatives developed by insurers.
UK Plans Increase Exposure
UK public sector pension funds have significantly increased their exposure to alternative investments and emerging markets over the past three years, says a State Street study. Exposure to alternatives was up 61 per cent and emerging market investments increased 31 per cent as a proportion of the portfolios of 105 pension funds studied. It also found overall exposure to equities increased nine per cent to £120.7 billion, but domestic equities allocation decreased by five per cent.
Specialty Drugs Account For Few Claimants
While the number of high cost specialty drugs has more than doubled from 52 in 2008 to 120 in 2016, they account for less than one per cent of claimants, says Vincent Ng, senior manager, health business consulting, TELUS Health. In the session ‘Retrospective 2016: Data Trends and National Benchmarks’ at the ‘2017 Telus Health Conference,’ he said, however, they account for about 26 per cent of the total costs. In 2016, the average cost for 99.1 per cent of claimants was $509 for the year. For the less than one per cent using specialty drugs, the average cost was $18,549. Still, he expects specialty drugs to continue to drive costs going forward. The percentage of cardholders who made a claim in 2016 rose across all regions of the country with the 50 to 59 age cohort accounting for a disproportionate share of total drug costs at 26.7 per cent. However, the youngest cohorts ‒ 20 to 29 and 30 to 39 ‒ are increasing faster. Generic utilization also continues to grow. In Ontario, the rate is around 79.4 per cent, up front 77.8 in 2014 with 46.7 per cent due to mandatory substitution requirements in drug benefit plans, up from 42.2 per cent in 2014.
Fengate Closes Fund
Fengate Real Asset Investments has closed the LPF Equities Fund, its new private equity fund with $300 million in committed capital, and its initial investment in the Cricket Energy Group of Companies. With the private equity platform, Fengate will leverage strategic relationships developed through the firm’s experience in the infrastructure and real estate sectors to identify businesses with strong fundamentals and attractive investment characteristics. It will target investments in mid-market, growth-oriented, operating businesses and strategic platforms across a targeted range of industry sectors in North America.
InvestorCOM Joins CETFA
InvestorCOM Inc. has joined the Canadian ETF Association (CETFA). InvestorCOM provides financial technology and outsourcing services to banks, asset managers, insurance companies, and investment dealers. It offers a suite of FinTech solutions in response to increasing regulation and demand for more effective communication and disclosure from the financial services industry. Anthony Boright, president and co-founder of InvestorCOM, says “Few sectors are as sensitive to managing costs than the ETF industry, which makes this a great partnership.”
Managing Benefit Risk Examined
(CGIB) May seminar. A panel of It takes place May 3 in Vaughan, ON. For more information, visit Benefit Risk