Unlocking Variable Benefits Concerns ACPM

The Association of Canadian Pension Management (ACPM) is greatly concerned that the only options contemplated for unlocking variable benefits requires either a payment in cash or a transfer from the plan to a retail retirement savings or income product. In a letter to the pension policy branch of the Ontario ministry of finance, it says this significantly increases the cost to the retiree. A preferred approach would be to establish an unlocked variable benefit account within the plan, in the same way that administrators already establish voluntary accounts during the accumulation phase. This would allow the retiree to continue to benefit from the economies of scale of the plan and oversight by the administrator of the plan’s service providers (investment managers, record-keepers, etc.) As well, members should be allowed to unlock 50 per cent within the defined contribution plan similar to the Alberta legislation. It is also uncertain as to why all of a member’s account must be transferred to the variable benefits account. Prior to full retirement, some members may prefer to access only part of their accounts through variable benefits and allow the remainder of their accounts to continue to be invested in the plan’s regular investment options for active and deferred members. By forcing the entire accumulation account to be allocated to a variable benefit account, the retiree would be forced to draw the Income Tax Act minimum income annually on the entire account rather than only the portion from which the retiree wanted to draw an income. Finally, unless an unlocked variable benefit account is allowed under the act, if the member does not want to commence receipt of benefits immediately, the draft regulation would consign the unlocked portion of the account to presumably more expensive retail products. It is concerned that the variable benefit provisions do not have any incentives for a plan sponsor to include them in a plan design.

Burst May Be Coming For Tech Stocks

Tech stocks may be headed towards bursting, says Kim Shannon, president and co-chief investment officer at Sionna Investment Managers. She told its ‘2019 Financial Market Review’ that there has been significant privatized investment in this winner-take-all businesses which has seen little to no short-term returns. However, unlike in the past when investors expected to start earning their money back, investment has remained in unprofitable tech businesses like Tesla, Uber, Lyft, and WeWork for over a decade. A robust flow of capital is required to sustain this and it is being justified by a belief in eventual excess returns. However, with Google holding 92 per cent of search market share and Yahoo controlling 70 per cent of social media, their monopolistic profits could come to the attention of regulators who have experience dealing with monopolies. And if capital becomes constrained as it did in 2000 and 2008, some tech stocks may seize up from a lack of new funding.

Manulife Changing Benefits Experience

Manulife Vitality will change the experience of benefits programs beginning this July. Using the latest technology, data analytics, and personalized solutions, the program helps customers track healthy activities and earn the potential for rewards and discounts. The company has also signed a pledge with Vitality and other global leaders to help make 100 million people around the world more active by 2025. Through the program, customers track healthy activities using a customized, goal-oriented program which offers rewards as they improve their health and well-being. “Chronic health conditions are on the rise in Canada and, in combination with an aging population, could soon reach economically unsustainable levels,” says Donna Carbell, head of group benefits, Manulife (Canada). “We are on a mission to help people and organizations become healthier, so employees can be their best at work, feel happier, and be more engaged.”

Young Boomers Lack Retirement Savings

One-fifth (21 per cent) of Canadian young baby boomers (ages 55 to 64) in pre-retirement have not saved anything for retirement, says Franklin Templeton’s ‘2019 Retirement Income Strategies and Expectations (RISE)’ survey. In the United States, 17 per cent of young boomers are in a similar predicament. This likely feeds into why nearly half of Canadian and American young boomers (46 per cent and 48 per cent, respectively) would consider postponing retirement, with approximately 15 per cent of Canadians and 13 per cent of Americans expecting to work until the end of their life. Yet it doesn’t always work out this way according to retired boomers, whether young or older. Over half of Canadian and American young boomers (54 per cent and 60 per cent, respectively) retired earlier than expected, compared to about one-third of Canadian and American older boomers (32 per cent and 37 per cent, respectively) ages 65 to 73. There were also more Canadian young boomers who retired due to circumstances beyond their control than Canadian older boomers (34 per cent versus 20 per cent, respectively). There was a slightly wider gap amongst Americans, with more American young boomers who retired due to circumstances beyond their control than American older boomers (33 per cent versus 17 per cent, respectively). “In 2009, when equity markets started to recover, many young boomers were moving up the career ladder; whereas older boomers were approaching retirement at the top of their earning years,” says Duane Green, president and CEO, Franklin Templeton Canada. “A decade later, after a long bull market run, young and older boomers are in different life situations once again. We see many older boomers benefitting from the transfer of wealth from their parents, yet the young boomers have had a challenging experience balancing more expensive lives – due to caring for elderly parents and still having financially dependent children – all while saving for that increasingly elusive retirement.”

Industrial Real Estate On Strong Footing

Canada’s industrial market began 2019 on a strong footing, building on the exceptional results achieved in 2018, says Avison Young’s ‘Spring 2019 Global Industrial Market Report.’ While Vancouver, BC, and Toronto, ON, remain key markets for occupiers and investors, scarcity of product was evident in the single-digit vacancy rates posted across the country in the first quarter of 2019. Nationally, the industrial sector remains undersupplied. Demand is outpacing new development and will continue to do so, even though almost twice as much space is under construction compared with spring 2018. This supply-demand imbalance has pushed rental rates higher in almost all markets, attracting investors and resulting in low yields and rising asset values. “eCommerce remains the industrial sector’s catalyst for success as retailers and developers strive to perfect the supply chain,” says Mark Fieder, Avison Young’s COO, Canadian operations. Online giants such as Amazon are impacting market dynamics in terms of scale and location with their demand for large distribution/fulfilment facilities near urban centres, resulting in rising land and development costs amid dwindling supply of developable land.

Flexible Schedules Best Summer Perk

The best summer perks their companies could provide to them are flexible schedules, says an Accountemps survey of Canadian employees. It found 49 per cent would like to see work-from-home opportunities and condensed days and early departure on Fridays (38 per cent). The survey of senior managers shows 55 per cent of said they offer flexible schedules and relaxed dress codes and 36 per cent allowed staff to leave early on Fridays. Another common warm-weather benefit cited by managers was company picnics or potlucks (47 per cent). “Providing greater flexibility to employees during the summer can significantly improve morale and productivity, especially in what can sometimes be slower months in the office,” says Koula Vasilopoulos, a district president for Accountemps in Canada. “Perks like team barbecues or early dismissal are easy to implement and go a long way toward keeping staff satisfied and motivated.”

Hedge Fund Co-investment Demand Rises

Investor demand for hedge fund co-investments rose sharply over the past 10 years with 41 per cent reporting in 2019 that they allocate to these illiquid investments alongside their hedge fund managers, says a survey from Credit Suisse’s prime services-capital services group. In 2016, 33 per cent of those surveyed invested in hedge fund sidecars, compared with 11 per cent in 2013 and just seven per cent in 2010. Larger investors are more likely to invest in co-investments, with 68 per cent of investors with more than $5 billion reporting allocations to the vehicles versus 34 per cent for allocators with less than $5 billion in their asset pools. The survey team attributes the increase in co-investment allocations to investors’ desire for better alignment of interest with their hedge fund managers and the rise of customization within the hedge fund industry.

ESG Grows In Importance To Alternative Assets

Nearly half of investors in alternative asset classes have excluded working with fund managers who were not primed for responsible investments, says an LGT Capital survey. It found 47 per cent had excluded fund managers on the grounds of environmental, social, and governance (ESG) investing criteria and over 50 per cent of respondents said ESG was important to investment decision-making. More than 90 per cent of the investors said the UK Sustainable Development Goals (SDGs) would help the financial industry address urgent environmental and social issues and a quarter of respondents have already integrated SDGs into their investment activities in some way. A further 40 per cent planned to do so in the coming two years. As well, nearly 90 per cent of respondents felt SDGs would create new investment opportunities and over 80 per cent said integration of ESG factors into investment decision-making would either have a neutral or positive effect on risk-adjusted returns. Climate action, as well as affordable and clean energy, came in as the top SDGs for investors when addressing their investment frameworks.

Investment Risk Analytics Held In High Regard

Corporate defined benefit plans have traditionally chosen to derisk liabilities, in part because of volatility concerns. In this context, Cerulli Associates is offering recommendations to asset managers and investment consultants helping derisking plans implement a liability-driven investing solution. After tens of billions of contributions and higher discount rates improving funded status for much of 2018, volatility negatively affected corporate DB plans in the last days of the year. Despite an improvement in conditions in the first months of 2019, mid-sized plans express a greater focus on investment risks and on the fees paid to third-party asset managers. Respondents generally hold investment risk analytics in high regard when choosing among various non-investment-management services provided by managers: more than half (56 per cent) rank strategic asset allocation advice and risk analytics as “very important.” Cerulli suggests managers help corporate plans take a more holistic view of investment performance and risk in their portfolios, particularly in the case of asset liability management.

Plans Fund Radical Ventures

Radical Ventures, a venture capital firm investing in entrepreneurs applying deep tech to transform massive industries, has launched a fund focused primarily on artificial intelligence. Cornerstone limited partners include the Canada Pension Plan Investment Board (CPPIB), the Public Sector Pension Investment Board (PSP Investments), TD Bank Group, and Wittington Investments, Limited. Jordan Jacobs, managing partner of Radical Ventures, says, “Toronto, ON, and Canada have led the world in developing AI that is disrupting industries from healthcare to finance to smart cities and everything in between. We are now seeing an explosion of AI startups in Toronto, across Canada, and globally.”

Hub Acquires Clarity

Hub International Limited has acquired the assets of Clarity Benefits Group Inc. Based in Calgary, AB, Clarity is an independent, boutique style firm providing employee benefit plans, life insurance, and group retirement plans to large and small companies throughout Canada.

Marshall Joins Canada Life

Jeff Marshall is senior vice-president, chief digital officer, Canada, for Canada Life, effective May 13. In this newly-created role, he will lead the development and execution of its digital strategy. Most recently, he was chief product and marketing officer at Street Capital Bank of Canada.

Fundamentals Presented

The Toronto Chapter of the International Society of Certified Employee Benefit Specialists will present two days of education on the ‘Fundamentals of Group Benefits and Pension Plans.’ Day one will look at topics like health and dental plans, life insurance, and disability. The second day will look at social programs and private retirement plans, setting up and administering a pension plan, and asset management. It takes place May 30 and May 31 in Toronto, ON. For information, visit 2019 Fundamentals