FSCO Undertakes ‘Targeted Reviews’
As part of its efforts to “ensure the health of pension plans and protect the interests of pension plan beneficiaries,” the Financial Services Commission of Ontario (FSCO) has undertaken a new initiative, “targeted reviews,” says Aon Hewitt’s ‘Radar.’ FSCO will use internal criteria to select a specific number of plans to provide data for each review. The process will be similar for all reviews with request letters to plan administrators setting out the type of information required, timelines for responding, and additional information where appropriate (such as frequently asked questions about the issue under review). The first targeted review will focus on whether administrators are completing Form 7 correctly and pension fund trustees are reporting non-remittances and/or variances.
Growth Assumptions Unchanged From 2017
J.P. Morgan Asset Management’s updated global market growth assumptions for 2018 is broadly unchanged from 2017 estimates. It projects forward-looking annual developed market growth at 1.5 per cent and emerging markets at 4.5 per cent, translating to “constrained, generally modest return expectations across most major asset classes, further impacted by the late stage of the current business cycle.” While many market participants are likely pleased with year-to-date results from their retirement accounts, it says the outlook for market returns over the next 10 to 15 years “remains less than inspiring.” The expected return for a simple 60 per cent world equity and 40 per cent U.S. aggregate bond portfolio has declined to 5.25 per cent, down from 5.5 per cent last year.
Views On Financial Wellness Differ
There’s a sharp difference between what workers want from employers in terms of financial wellness and what employers say they should offer in areas like debt management, student loans, and children’s education, says research from Alight. ‘2018 Hot Topics In Retirement and Financial Wellbeing’ says non-retirement assistance is important because many employers are using benefits to retain and attract employees. While employees (88 per cent) and employers (84 per cent) were closely aligned about if employers should help workers save for retirement, 46 per cent of workers wanted help with debt management while only 23 per cent of employers agreed. As well, 47 per cent of workers want help saving for children’s education, but only 20 per cent of employers agreed. Helping pay off or refinance student loans saw 46 per cent of workers believing employers should assist, but only 18 per cent of employers agreed.
ETF Assets Grew In 2017
Assets invested in ETFs listed in Canada increased by 38.2 per cent during 2017 to reach a new high of US$117 billion at the end of December, says ETFGI’s December 2017 Canada ETF and ETP industry insights report. Assets invested in Canadian-listed ETFs grew by a record US$32.3 billion during 2017, eclipsing the previous record of US$19.8 billion set in 2016. The increase of 38.2 per cent, from US$84.6 billion at the end of 2016 also represents the greatest growth in assets since 2009 when markets recovered following the 2008 financial crisis. During 2017 ETFs listed in Canada saw record net inflows of US$18.9 billion; 48.5 per cent more than net inflows for 2016 and 44.3 per cent more than the previous record set in 2015.
Hallett Joins Sun Life
Campbell Offers Legal Update
‘Legal Update 2018’ is the topic of a CPBI Pacific session. Murray Campbell, a partner at Lawson Lundell LLP will discuss recent statutory and case law developments of interest to pension and benefit plan sponsors and administrators. It takes place January 24 in Vancouver, BC. For information, visit Legal Update
Quebec Fills Void
Quebec has filled a regulatory void in its supplemental pension plans framework that lasted just over two years, says a Blakes’ ‘Pensions, Benefits & Executive Compensation Bulletin.’ The ‘Regulation to amend the Regulation respecting supplemental pension plans’ is now in force providing for new measures for pension plan administrators to address funding policies, annuity purchasing policies, variable benefits, contents of annual statements, letters of credit, and prescribed topics for annual meetings. Other topics addressed by the regulation include contents of actuarial valuation reports, transfers of benefits between spouses, the elimination of references to the additional benefit, and the adjustment of a member’s early benefit. It now prescribes the requirements of the written funding policy provided for under the SPPA which means that plan administrators will need to revise the funding policies that guide the pension committee in the performance of its funding-related duties. It also sets out onerous funding rules which include requiring an actuarial valuation before each annuity purchase and providing for “special annuity purchasing payments” into the pension fund to maintain the plan’s degree of solvency at the greater of its pre-purchase level or 100 per cent.
Young Germans Mistrust State Pension
Only a third (34 per cent) of Germans aged between 14 and 29 trust that the state pension will provide enough for them in retirement, says a survey multi-employer scheme MetallRente. Instead, 61 per cent prefer to put their trust in occupational pension plans. It also showed support for Germany’s new pension law, the Betriebsrentenstärkungsgesetz (BRSG), which allows pension plans with defined ambition goals and without guarantees. It is the first time German law has supported pension funds without guaranteed retirement incomes. Just over half of the young people surveyed trusted pension plans that were set up jointly by employers and employee representatives.
Insurance Product Designed For Younger Clientele
iA Financial Group has launched a critical illness insurance product designed for a younger clientele. ‘TRANSITION – 4 illnesses’ covers the four most common critical illnesses and the benefit can be used to replace lost income or pay back a mortgage loan. It features an enrolment process which has been significantly improved. Applicants are only required to answer eight simple medical questions. Electronic signature is authorized and, in many cases, enrolment is instantaneous, meaning the client is covered immediately. It has also made meaningful improvements to its ‘Transition – 25 illnesses’ critical illness insurance product, including the addition of 25-year term insurance and flexible premium repayment options giving clients access to liquidity as early as the fifth year, as well as a reduction of rates for all term coverage.
Performance Linked To Responsible Investment
There is a link between responsible investment and the power to gather assets under management, says research from MSCI Inc. As part of its annual ratings review of the financial sector, it considered a link between the environmental, social, and governance ratings of 33 listed money managers and the growth of their assets under management over three periods: calendar year 2016; the two years to the end of 2016; and the three years to end-2016. It used its responsible investment key issue score, part of its own assessments, to look for a link. For calendar 2016, the managers that scored the highest under its responsible investment assessment recorded an average compound annual growth rate of 3.7 per cent in institutional assets under management, versus a 1.8 per cent decline for those with the lowest scores. Over the two years, the CAGR is 2.6 per cent for the leaders versus 1.6 per cent for the lowest scorers; and for the three-year period, those with higher responsible investment scores saw 3.6 per cent growth in AUM, versus 0.3 per cent growth. This signals that those managers with higher ESG scores were benefiting more than their peers with lower scores.
Nowak Joins Unigestion
Session Examines NAFTA, Brexit
NAFTA’s impact on the North American Economy and the impact of Brexit on the world economy will be examined at the CPBI Quebec Region’s ‘2018 Economic Forecast.’ Speakers will be Blair Reid, institutional portfolio manager at BlueBay Asset Management; Jean-Philippe Bry, vice-president, strategy, at CI Investments; and Mathieu Lachance, a portfolio manager at Cristallin Investments. It takes place January 18 in Montreal, QC. For information, visit Economic Forecast
Institutions Expect Correction
Seven out of 10 institutional investors expect a global equity market correction of more than 10 per cent within 18 months, says Managing Partners Group. It found that nearly half expect a correction within a year and nearly a third expect one of up to 30 per cent. Only 12 per cent of those surveyed do not expect a correction at all. The findings of the survey reflect research that investors worldwide are steeling themselves for the emergence of asset bubbles and market corrections. One-fifth of those who have already adjusted their portfolios in anticipation of a correction have raised exposure to asset-backed securities. The most likely reason for a slump is a run on equities sparked by fears they are overpriced (37 per cent); other reasons cited include a ‘black swan’ event, a geopolitical crisis such as North Korea, a rate hike, the end of quantitative easing, and Western governments’ indebtedness.
Collectively Key To Pooled Solutions
It’s the collectivity that’s the key to providing pooled solutions for retirement savings, says Don Ezra, a long-time Russell Investments icon and author of five books. In the article ‘Collective Ways To Help Employees In Retirement Planning’ at the Benefits and Pensions Monitor website, he says collective arrangements can help reduce the longevity risk faced by many heading into retirement. He recently launched a website, www.donezra.com, which features a blog on retirement planning issues.
Let’s Talk January 31
‘Bell Let’s Talk Day 2018’ is set for Wednesday, January 31, and everyone is invited to join the Canadian conversation that’s leading the world in confronting the stigma around mental illness and sharing ideas to move mental health forward. The campaign spotlights personal stories from Canadians of all ages from all walks of life living with mental illness or providing support for those who do. On ‘Let’s Talk Day,’ millions of people in Canada and around the world send messages of support and encouragement for those struggling with mental illness, share their own stories, and offer ideas about how to improve everyone’s mental health. Bell will donate five cents to Canadian mental health programs for each of these interactions on January 31, at no extra cost to participants. In 2017, records were set with 131.7 million messages, bringing Bell’s funding for Canadian mental health to $86.5 million since the day was launched 2010.
Monkman Becomes Partner
Forecast Tours Canada
Mercer’s ‘Fearless Forecast and Retirement’ will visit cities across Canada in January and February. Theme this year is ‘2018 Canadian Retirement: Mind the gap and bold steps to help mend it.’ It will provide the latest economic projections and how they are going to impact retirement plans in Canada. It takes place January 23 in Vancouver, BC, and January 25 in Edmonton, AB, and Halifax, NS. For information and the schedule, visit 2018 Forecast
YSB Members Want To Join CAAT
Members of the Youth Services Bureau of Ottawa (YSB) pension plan joined the Colleges of Applied Arts and Technology (CAAT) Pension Plan, effective January 1. Under the merger, the 300 active, retired, and deferred pension YSB plan members will receive a pension based on the YSB plan provisions for service accrued to December 31, 2017, and a pension based on CAAT Plan provisions for service accrued after that date. During the 90-day consent process required under provincial regulations, 99.6 per cent of active YSB plan members voted for the merger, while no retired or deferred members objected. This overwhelming consent outshines the regulatory requirements of two-thirds of active members approving with no more than one-third of retired and deferred members objecting. In the coming months, application will be made to the Financial Services Commission of Ontario for its consent to transfer the pension assets from the YSB pension plan to the CAAT Plan. This process is expected to be completed before the end of 2018. The merger allows the YSB to exit the pension-management business and focus on its core competency of supporting youth and families with services in housing, mental health, youth justice, employment, health, diversity, and youth engagement. This is the second merger of a single-employer, defined benefit pension plan with the CAAT Plan. The Royal Ontario Museum pension plan merged with the CAAT Plan in 2016.
Solvency Nears Post-recession High
Capping a year that saw the financial health of Canadian defined benefit pension plans reach levels not seen in more than a decade, plan solvency in the fourth quarter of 2017 maintained the trend and remained near the post-recession high set in the third quarter, says Aon’s quarterly ‘Median Solvency Ratio’ survey. William da Silva, senior partner and retirement practice director at Aon Hewitt, says “With solvency near 100 per cent, it seems very clear that plan sponsors are looking at another manageable year regarding funding and 2018 is also shaping up to be a good year for settlements, as one of the key impediments to fully settling liabilities – cash outlay – is now less of a concern.” The median solvency ratio held steady through the fourth quarter of 2017, standing at 99.2 per cent on January 1, 2018. That compares with 99.3 per cent for the third quarter of 2017. As of that date, 46 per cent of plans were fully funded, down from 48 per cent in the previous quarter. Canadian bond yields fell over the quarter, with Canada 10-year yields down nine basis points (BPS) and Canada long bond yields down 24 bps. Lower yields increase pension plan liabilities and negatively impacted pension plan solvency over the quarter.
DB Plans Benefit From Funding Rules Changes
Defined benefit pension plan sponsors in Ontario will experience less volatility and reduced levels of contributions with the province’s new funding rules revealed in December 2017. The improved health of pension plans combined with the new funding rules will encourage some Ontario plan sponsors to review their funding strategy, says Manuel Monteiro, leader of Mercer Canada’s financial strategy group. For example, they could file new valuations and reduce future contribution requirements going forward. The new funding rules have fundamentally altered the risk/reward equation for Ontario pension plan sponsors and plan sponsors are encouraged to review their risk management strategy in light of changes to the funding rules and the strong current financial position of their pension plans. “Many sponsors of closed and frozen plans will likely continue reducing risk with an ultimate goal of eliminating their defined benefit liabilities. However, other pension plan sponsors will view the new rules as an opportunity to continue to take risk in the expectation of reducing the long term cost of their pension plan,” says Monteiro.
Work Increases Around Vacations
Almost three quarters (71 per cent) of working Canadians report having to put in a substantial amount of extra work (11.4 hours on average) before and/or after a one-week vacation, says an ‘ADP Canada Sentiment Survey.’ However, on the positive side, they are putting in half as much extra working time around a vacation when compared to last year’s 21 hours. “It can be exhausting to prepare for a vacation, both personally and professionally,” says David Heather, vice-president, people and human resources, at ADP Canada. “It’s encouraging to see people working fewer extra hours to prepare for a break from work.” This year has seen an emerging trend of companies adopting more flexible vacation policies. Many are moving away from a ‘one size fits all’ approach to more personalization. This includes a small number of employers offering unlimited vacation or the ability to ‘flex’ their holiday entitlement. While this is a positive shift, some employers may not be doing enough to ensure employees actually take all of their allotted vacation. The survey found only one in three workers take all of their allotted vacation time annually and more than a quarter (28 per cent) reported taking less than half of their allotted time.
Charity Benefit Added As Enhancement
Foresters Financial has included a charity benefit provision to the recent enhancement to its Advantage Plus participating whole life insurance product in Canada. When a claim is paid, Foresters will donate an additional one per cent of the basic insurance amount to the owner’s designated registered charity so they can support their favourite cause. This provision is automatically included, does not require additional premiums, and does not impact the value of the death benefit paid to the beneficiaries. The payment is made as a donation in the name of the insured and may be eligible for a charitable tax deduction from the charity.
Unhealthy Workforce Cost Discussed
‘Quantifying the Costs of an Unhealthy Workforce’ will be the focus of an Economic Club of Canada panel discussion. Featured panelists are Heather Chalmers, vice-president and general manager at GE Healthcare Canada; Dr. Robert Bell, Ontario’s deputy minister of health and long-term care; and Susanne Cookson, co-founder of BestLifeRewarded Innovations. It takes place February 1 in Toronto, ON. For information, visit Unhealthy Workforce
Solvency Of Plans Improves
The solvency position of Canadian defined benefit pension plans improved in 2017. The Mercer Pension Health Index, which represents the solvency ratio of a hypothetical plan, stood at 106 per cent on December 29, unchanged from September 30, but up from 102 per cent at the beginning of the year. The median solvency ratio of the pension plans of Mercer clients was 97 per cent at the end of the year, up from 93 per cent a year ago. Last year turned out to be a positive year, with many DB pension plans being at or very close to fully funded at year end. The funded position of pension plans was boosted primarily by surging equity markets, particularly in the fourth quarter. However, this was partially offset by falling long-term interest rates which declined 30 basis points in the fourth quarter, for a net decline of 10 basis points over the year.
Europe Faces Stable Year
Europe’s asset management industry is in line for a largely stable year in 2018, says Cerulli Associates. Its research indicates that across Europe, cross-border managers will be focusing more of their sales efforts on bond flexible/strategic/total return strategies than other approaches over the next 12 to 24 months. It also says over the next two years asset managers will devote more resources to equity smart beta management. Given the widespread expectations that interest rates are headed only one way over the long term, investors in both the UK and Europe are seeking funds invested in securities that have floating rate characteristics, meaning coupons will increase in line with central bank interest rate hikes. Meanwhile, clients with fixed income investments are looking for protection against inflation.
CPPIB Adds To Student Housing Portfolio
Sun Life Completes Excel Purchase
Sun Life Global Investments (Canada) Inc. has completed the purchase of Excel Funds Management Inc. and Excel Investment Counsel Inc., an investment manager specializing in emerging markets funds. The acquisition was previously announced in September 2017. Bhim D. Asdhir, formerly president and chief executive officer of Excel Funds, will join the Sun Life Global Investments leadership team in the newly created role of head of emerging markets and business development.
Fund Indices Improved Last Year
Forty-one of the 44 Morningstar Research Inc. fund indices increased during the calendar year, including 12 indices that increased by 10 per cent or more. The best performer among the fund indices was the one that tracks the Greater China Equity category, with a 35.9 per cent increase, mirroring the 36 per cent increase of Hong Kong’s Hang Seng Index. Funds in this category that hedge their currency exposure will likely outperform their peers that do not, since the Hong Kong dollar depreciated by 7.3 per cent against the Canadian dollar during the year. European equity funds benefited from a combination of strong market performance and favourable currency movements and the Morningstar European Equity Fund Index posted a 14.6 per cent increase for the year. In the United States, the S&P 500 Index posted a total return of 21.8 per cent ‒ its ninth consecutive calendar year in positive territory and best performance since 2013. However, Canadian fund investors only captured a fraction of this gain as the Morningstar U.S. Equity Fund Index increased 13.2 per cent for the year, hampered by the loonie’s seven per cent appreciation against the U.S. dollar. Domestic equity funds had positive results for the year, but trailed their foreign counterparts. The Morningstar Canadian Equity Fund Index increased 7.7 per cent, underperforming the benchmark S&P/TSX Composite Index which had a total return of 9.1 per cent, while the fund indices that track the Canadian Dividend & Income Equity and Canadian Small/Mid Cap Equity categories were up 7.9 per cent and 3.2 per cent, respectively. Despite the interest rate hikes enacted by central banks in many countries including Canada and the United States, seven of the eight fund indices that track fixed income categories increased in 2017. By far the best-performing fund index in this area was Preferred Share Fixed Income with a 14.1 per cent increase.