Bond Yields Drop As Population Ages

A joint publication by the CIA and the Society of Actuaries and the Institute and Faculty of Actuaries (UK) ‘proves’ that as a population ages, bond yields decline, says Joseph Nunes, co-founder and executive chairman of Actuarial Solutions Inc. ‘The Connection between Population Structure and Bond Yields’ gives an important signal that as the population ages bond yields may not go upward and if they do it may well be an anemic climb. In Canada, there has been 30+ years of declining bond yields and with the baby boom ending back in 1964, the last 30 years has seen a continuous aging of the population. The CIA’s 2019 paper ‘Retire Later for Greater Benefits: Updating Today’s Retirement Programs for Tomorrow’s Retirement Realities’ exposed the reality that lower investment income and longer lives will drive workers to stay on the job longer before they will be able to afford retirement. However, correlation does not necessarily mean causation, he says. Still, the more obvious answer that fewer children and an aging population drives lower bond yields. “This makes complete sense when you think about the fact that older savers are advised to transition their savings from equities to bonds and those buying target date funds and annuities are transitioned automatically,” says Nunes. Imagining how this story will progress going forward, he points to Japan, a population older than Canada, which saw interest rates go negative in 2016. This may, in turn, drive novice investors to risky equities and “the big worry here is that it’s not just the novice investors that are taking risks that cannot be afforded but it’s also our collective pension funds. I worry that taxpayers and the lowly worker will pay the price if the super-well-compensated investment gurus blow up our savings,” he says.

Small Businesses Paid Full Cost

Small owner-managed businesses ravaged by Covid-19 are subsidizing big insurance companies during this pandemic and don’t even know it, says Robert J. Crowder, the founder and president of the Benefits Trust. In many cases, they have been paying for several months the full cost for employee health and benefits plans while all or most services are no longer provided. And if they are now starting to get a reduction in premiums, it’s not enough. Since mid-March, dentists and other professional healthcare providers such as chiropractors, physiotherapists, and massage therapists have been shut down, with the exception of emergency treatments. But small businesses continued to pay full benefits premiums while their employees didn’t use these services. The numbers tell the tale, he says. During the coronavirus pandemic, three-quarters of Canada’s 600,000 small businesses have employee benefits plans and over the past three months they paid out approximately $1.6 billion in premiums for benefits coverage at a time when virtually no services were provided. Using claims data since the pandemic began (representing thousands of Canadian small businesses), it is clear that the number of claims for health and dental services is down 50 per cent with some components of benefits plans, such as dental visits, down as much as 95 per cent. Most small businesses paid full premium for their benefits plans in March, April, and May, and only in June did some start to see any credit from large insurers, some of which are now offering future credits to mitigate lower numbers of claims.

CLHIA Wants Premium Eliminated

The Canadian Life and Health Insurance Association (CLHIA) is calling on British Columbia to reduce and eventually eliminate the premium tax on life and health insurance premiums. In its ‘2021 Provincial Budget Submission,’ it says it is essential to keep business taxes low to ensure a competitive tax environment that attracts investment, creates jobs, and moves the provincial economy forward. The insurance premium tax was established in the early years of the last century before the introduction of corporate income taxes. With public healthcare costs, including long-term care costs, and the need for disability insurance protection rising significantly, there are serious adverse implications from the continued application of premium taxes in the 21st century. The imposition of premium tax impedes employers’ and individual’s capacity to obtain additional insurance coverage by directly increasing its cost. In 2018, the industry collected and paid over $120 million in premium taxes to British Columbia, an amount that otherwise could have provided enhanced coverage and benefits to insured workers and their families.

Return To Steady Jobs Hard To Predict

With thousands of Canadians laid off from work due to the COVID-19 pandemic, it’s hard to predict who will return to steady jobs and when. Yet, a study from the Institute for Research on Public Policy (IRPP) on long-term trends in permanent layoffs from 1978 to 2016 reveals that the Canadian labour market has been remarkably resilient, even through multiple economic downturns and a period marked by globalization and profound demographic, technological, and environmental changes. “Despite numerous changes in the economic environment over the past four decades, the likelihood of Canadian workers losing their job has not increased overall and the likelihood of laid-off workers finding new jobs has not decreased,” say the authors of the study, Statistics Canada analysts René Morissette and Theresa Hanqing Qiu. If anything, the likelihood of losing one’s job has trended downward for many groups of workers. From 2010 to 2016, permanent layoff rates among employees aged 25 to 64 averaged 6.6 per cent, down from the 8.3 per cent average from 1978 to 1980. Some categories of displaced workers are more adversely affected by job loss than others, however. Consistent with previous research, the study finds that employees who hold degrees, those employed in larger firms, or who have long job tenure (that is, those who have been with the same employer for six or more years) are significantly less likely to lose their jobs. Once they lose their jobs, however, long-tenured workers have more difficulty getting re-employed and they experience higher than average drops in pay. Even five years after being laid off, many are unlikely to have regained their previous level of earnings. Importantly, and contrary to the impression one might get from media headlines, the study ‒ ‘Turbulence or Steady Course? Permanent Layoffs in Canada, 1978-2016’ ‒ finds that the majority of job losses that occurred since 1994 did not result from mass layoffs (when firms with 50 or more employees lay off at least 10 per cent of their workers). Also, those displaced in non-mass layoffs were less likely than those who lost their jobs in mass layoffs to be re-employed in the short and long term.

Employers Making Workplace Safe

As millions of workers begin returning to their workplaces, a majority of U.S. employers are moving to ensure their safety and wellbeing, says a Willis Towers Watson COVID-19 employer pulse survey. Atop the list of initiatives are screening workers on re-entry, providing personal protective equipment (PPE), and reconfiguring workspaces. However, only about one-third have a documented plan to address a potential second wave of the virus even though nearly 40 per cent of companies identified workplace safety as a top priority in June, compared with 27 per cent in a survey conducted in April. Most employers (71 per cent) have developed workplace safety and employee safety policies to prepare for the return of employees. Companies are protecting their employees by reconfiguring work areas to maintain six feet of distance (56 per cent), providing PPE such as masks to employees (76 per cent), and staggering shift changes and breaks (57 per cent). More than half of companies will use employee questionnaires and thermal scanning to screen the workforce on re-entry. Nearly three in four companies (73 per cent) will require masks in public locations and 24 per cent will require masks at all times; however, only one in six (18 per cent) plans to test employees for acute infection before they return to work. While only one in three (32 per cent) has developed a plan for subsequent waves, an additional 50 per cent of respondents plan to develop such a plan. Employers are also giving special consideration to at-risk employees who are older or have a medical condition and whose jobs cannot be done remotely.

Frank Joins Ontario Teachers’

Karen Frank is senior managing director, equities, for the Ontario Teachers’ Pension Plan Board (Ontario Teachers’). Based in its London, UK, office, her career includes more than 25 years of experience in investment banking and private equity. She joins the pension plan from Barclays PLC, where she was CEO of Barclays Private Bank since 2016.

ESG ETFs See Inflows

Environmental, social, and governance (ESG) ETFs and ETPs listed globally gathered net inflows of US$4.33 billion during May, says ETFGI, bringing year-to-date net inflows to US$28.53 billion which is significantly more than the US$7.19 billion gathered at this point last year. Total assets invested in ESG ETFs and ETPs increased by 10.4 per cent from US$74.03 billion at the end of April 2020 to reach a new record of US$82 billion at the end of May.