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June 2017 - Pension Point of View

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June 2017


Pension Corporation’s first trustee education event



On April 25, 2017, Pension Corporation hosted its first education event for trustees of the five pension plans it serves. With trustees in Victoria for the annual Public Sector Pension Conference, it was the perfect time to give them a behind-the-scenes look at the day-to-day interactions the corporation has with their plan members.

“One of our primary goals is to be a trusted advisor to our clients—the pension plan boards of trustees,” said Aaron Walker-Duncan, vice-president of Board Services. “First and foremost, we want to provide the boards with a professional-quality level of service, day in and day out, in all the activities we do—but what else can we do to make their service experience even better? We came up with this concept of a trustee education event, to bring them into the organization and show them more about what we do to serve their members.”

The afternoon started with a tour of the newly renovated member services centre and plan operations area. Staff members were on hand to speak with the trustees about their areas of work, and how they connect with plan members and answer questions. In addition to providing insight into their daily work, staff also shared stories about their meaningful interactions with members.

Joanne Mikitka, a client service representative, shared some fun statistics that highlight the volume of interactions the member services team has with members: 216,000 phone calls, 25,000 email inquiries and 6,686 one-on-one meetings in the 2016/17 fiscal year.

With these high numbers, it’s little wonder the corporation, when renovating the member services centre, invested in new design and technology to ensure member privacy and security—including sound-dampening materials and white-noise machines in the ceiling to minimize sound, and higher workstation panels to provide separation of space.

The redesign also took into consideration staff health and wellness. “Changes that make staff more comfortable improve morale, which in turn increases our efficiency and helps us better serve the members,” Rob Deutscher, client service representative, told trustees. He pointed out the computer-controlled lights that adjust depending on the season and time of day, the sit-stand desks and the glass panels used on workstations to allow more natural light into the space. “The natural light energizes us and uplifts our conversations with members. I think they can hear us smiling,” he said.

Following the tour, trustees heard an address by Samuel Arbesman, a complexity scientist and author of Overcomplicated: Technology at the Limits of Comprehension. Arbesman spoke about how systems and technology have grown in complexity over time, with each new layer often having unintended consequences.

Following Arbesman’s talk, Pension Corporation CEO Laura Nashman brought it back to the work of pensions.

“We don’t have the luxury to be humbled by the complexity of our systems. We need to understand the details, we need to dig into the code, so that when we make a small change at one end it does not have the unintended consequence at the other end. Why is it so complicated for us? Why does it take so much time? We need to ensure that every change we make is made thoughtfully—and we ensure the output is exactly what it needs to be. We don’t tolerate mistakes in that space.”

As the event came to a close, trustees had a chance to chat over refreshments. Many of them were impressed with what they’d seen.

“I’d been here about four years ago, before the renovation,” said Chan Seng-Lee, a trustee for the Public Service Pension Plan. “I was very impressed that the corporation included the staff members in the tour. It’s nice to see the frontline workers who are interacting with the members, so I found it very useful. I was impressed with the speaker and found this event very insightful. I appreciate what the Pension Corporation has done.”

Reg Bawa, a trustee for the Teachers’ Pension Plan, had a unique perspective. “I actually started my career at Superannuation Commission, which was the predecessor to Pension Corporation, so I know the way things were, back in the old days, and it’s neat to see how the organization has grown, to see the sophistication of the organization.”

“It’s great to see how the workflow, the processes and the space have kept pace with the complexity of the work.”

With positive feedback and engagement from the trustees, the first trustee education event was quite a success—and it’s unlikely to be the last.

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Sex, gender and defined benefit pension plans

A summary of the changing legislative landscape and the potential impact to defined benefit pension plans



In every country, in every year for which reliable birth and death records exist, women show a consistent survival advantage over men—in early life, late life and total life.[1] The primary cause of this difference is much disputed, with some arguing it’s solely a result of chromosomal differences, and others citing several interrelated factors, including lifestyle. Whatever the cause, the difference in longevity is anticipated to persist indefinitely.

The mortality difference between the sexes is of critical importance to defined benefit pension plans, as it affects the results of a plan’s valuation. If more women than men participate in a pension plan, that plan will carry a greater financial liability (since it will be projected to have to pay member pensions for a longer period of time, on average, than a similar plan with more men). Even assumptions for unisex calculations, such as commuted values, are established using valuation data—and that data takes sex into account. For these reasons, information on the breakdown of a plan’s membership by sex is critical to its accurate financial management. 

Historically, the terms “sex” and “gender” have largely been used interchangeably, with some dictionaries still identifying the terms as synonymous.[2] However, within modern society, their meanings are increasingly distinct. In general terms, “sex” refers to the chromosomal, gonadal and anatomical characteristics associated with biological sex. “Gender,” on the other hand, can also refer to an individual’s role in society (gender role), concept of themselves (gender identity) or presentation of their gender (gender expression). When a person’s genetically assigned sex does not line up with their gender identity, they may refer to themselves as transgender.

In 2016, the BC Human Rights Code was modified to include protection for “gender identity or expression.”[3]  This update followed amendments in 2014 to BC’s Vital Statistics Act, which introduced a process allowing persons born in BC to change the gender designation on their birth certificate to their identified gender without undergoing transsexual surgery.[4] Once the gender on a birth certificate is updated, it can be submitted directly to Health Insurance BC and Insurance Corporation of BC to change the individual’s gender on all government-issued identification. To date, the gender choice on BC birth certificates and driver’s licences is binary: male or female.  This approach is mirrored in most jurisdictions across Canada.

In some jurisdictions, a movement exists to strike sex or gender identification from birth certificates. The primary argument for this shift is that a birth certificate should only include information that cannot change, such as date and place of birth.  Increasingly, an individual’s sex/gender is considered a characteristic that can change. In the past four years, human rights challenges on this issue have been filed in British Columbia, Saskatchewan, Manitoba and Alberta; in some international jurisdictions, such as Germany and Australia, birth certificate identification requirements have been modified to either remove sex identification altogether, or allow for additional choices, including “unspecified.”[5]

This conversation raises a key question for pension plans:  how will policy shifts around the framing of sex and gender affect the longevity estimates that inform a plan’s valuation? If further legislative changes permit individuals to no longer identify their sex or gender on government-issued identification, there is a risk these estimates could be increasingly misaligned with the actual longevity of members. How can this discrepancy be accounted for from an actuarial perspective? 

Stay tuned—we’ll be discussing this issue further in the next Pension Point of View, talking about how other jurisdictions are dealing with this very challenge.

 

[1] David Robson, “Why Do Women Live Longer Than Men?” BBC Future, October 2, 2015, http://www.bbc.com/future/story/20151001-why-women-live-longer-than-men.

[2] MacMillan Dictionary Online, s.v. “gender,” accessed May 10, 2017, http://www.macmillandictionary.com/thesaurus-category/british/gender.

[3] British Columbia Ministry of Justice, “B.C. Human Rights Code to Include Explicit Protection for Gender Identity, Expression,” news release, July 25, 2016, https://news.gov.bc.ca/releases/2016JAG0025-001352.

[4] “Change of Gender Designation on Birth Certificates,” Government of British Columbia, accessed May 10, 2017, http://www2.gov.bc.ca/gov/content/life-events/births-adoptions/births/birth-certificates/change-of-gender-designation-on-birth-certificates.

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Book review


Empty Promises: Why Workplace Pension Law Doesn’t Deliver Pensions
by Elizabeth J. Shilton (McGill-Queen’s University Press)

Empty Promises explores the evolution of workplace pensions in Canada through the lens of lawmakers. If you’re interested in understanding the history of Canadian workplace pensions from the 1800s through the present day, this book is a must-read.

The author starts with the premise that Canada’s workplace pension system was not designed to produce adequate, predictable and secure pensions for workers; rather, it was designed to meet the business needs of employers.  Therefore, we should not be surprised that our current system doesn’t produce good pensions for a majority of Canadians. State action, Shilton argues, is necessary to create pension plans that deliver adequate, predictable, secure pensions for our citizens.

Workplace pension plans were established as a valuable human resource tool for employers who needed a stable workforce and a way to ease older workers out when they became less productive. Plans were designed to pay benefits only to long-serving workers, with normal employee turnover ensuring most employees did not qualify. Interestingly, in the early years, employers preferred defined benefit over defined contribution arrangements.

According to Shilton, regulatory efforts to protect worker needs have had limited positive effect on benefit adequacy and security, but a demonstratively negative effect on expanding coverage. At the same time, regulatory efforts have increased costs and reduced value for employers.

The book explores the roots of workplace pensions (including the evolution of pension law from case law to regulation), the balance between public and private pensions, and the impact of collective bargaining.

Shilton also considers public sector defined benefit plans, tracing the evolution of many plans to joint governance and sponsorship. She concludes that the public sector pension model is the exception that proves the rule; its success depends not on employment law, but on state power to create pension structures with a large and diversified mandatory membership base, economics of scale and portability—all requirements for adequate, predictable and secure pensions.

While the book is quite technical in structure and refers to many legal cases, the use of examples to describe the history of workplace pensions in Canada makes Empty Promises very readable.



"A system in which the welfare of retired workers depends for its success on the economic imperatives of employers cannot defend itself against shifts and changes in those imperatives in response to economic conditions or regulatory laws that affect the cost and complexity of providing workplace benefits. Such a system will flourish only as long as it meets the needs of employers."


Factual snippets


Retirement 2.0—how technology is affecting retirement

HSBC’s 2017 report Shifting Sands (part of its Future of Retirement series) shows more and more people are using technology to plan for retirement and improve their quality of life. This global report captured the views of 18,414 people (including 1,003 Canadians) from 16 countries and territories.

Technology is not just changing how we communicate and connect with each other—it’s changing the way people can save and plan for retirement. You no longer need to visit a financial planner in an office during business hours; instead, you can access your retirement planning tools online in the comfort of your own home or at your favorite coffee shop.

The number of working-age people who use technology to plan and save for retirement is almost double the number of retirees who used the same technology.

As well as improving how we plan for retirement, it is changing how we live. In fact, a third of working-age participants believe technology will provide a better standard of living for future retirees. From the way we stay connected to family and friends to the way we monitor our health, technology is improving all aspects of our lives.

Advances in retirement-planning technology will continue to grow as the millennials move into the next phase of their lives and become more serious about planning for the future. If today’s technology makes it easier for people to be more informed and engaged in their retirement planning, imagine what the technology of tomorrow will do and how it will improve our quality of life!

Millennials and retirement—how prepared are they?

Shifting Sands also considers what retirement will look like for millennials. It’s no surprise millennials have experienced weaker economic growth than previous generations—some even believe this is the first time in history a generation will be worse off than their parents. Over half the participants surveyed agree this generation is “paying for the economic consequences of older generations, such as the global financial crisis and rising national debt.”[1] There is also the potential that employer pension schemes will go bust or be unable to pay benefits to millennial workers.

Forty-six per cent of survey participants think millennials have a better quality of life than the generations before them—but an improved quality of life now does not necessarily translate to being better off in retirement. Sixty-four per cent of participants believe millennials will live longer and retire later than previous generations; however, millennial participants said they expect to retire earlier than the baby boomers and only live a year longer.

But how prepared are millennials to face their retirement planning challenges? Millennials see saving for retirement as a difficult but necessary task, with the majority willing to cut back on their current expenses in order to do so. However, only a small percentage of all generations are willing to make risky investments to ensure their financial stability; that’s why more than half of the survey participants say they will actively seek information to guide their financial decisions.

So, while the millennials may not have the same retirement security as previous generations through employer-sponsored plans, most are prepared to start early to ensure they have financial stability in retirement and are willing to seek the help they need to do so.

 

[1] HSBC, Shifting Sands. The Future of Retirement research series (London, ON: HSBC Holdings plc, 2017), p 16. https://www.hsbc.ca/1/PA_ES_Content_Mgmt/content/canada4/pdfs/personal/for_canada_report_2017_en.pdf.

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Stats-at-a-glance 


2015 RRSP contributions up from 2014

In 2015, Canadian taxpayers contributed $39.2 billion to registered retirement savings plans (RRSPs), an increase from 2014, according to Statistics Canada. The number of Canadian taxpayers who contributed to an RRSP and the average contribution amount also increased slightly.

Interestingly, Alberta had the highest percentage of contributors of any province or territory, but its number of contributors was down from 2014. Nunavut had the highest average contribution amount, but the lowest percentage of contributors.

In BC, the average contribution amount and percentage of contributors increased from 2014 to 2015. BC's average contribution amount was just above the national average, but participation lagged slightly behind the national average.

RRSP contributions by province/territory

 

2014 to 2015
(% change)

2015 tax filers
(% contributors)

2015 median
($ contributed)

Canada

0.3

22.9

3,000

Newfoundland and Labrador

0.8

16.8

3,060

Prince Edward Island

2.5

17.9

2,600

Nova Scotia

0.0

17.4

2,480

New Brunswick

-0.2

16.5

2,600

Quebec

0.3

24.3

2,650

Ontario

0.3

22.3

3,000

Manitoba

0.3

21.5

2,300

Saskatchewan

-0.2

24.0

2,700

Alberta

-0.6

27.0

3,440

British Columbia

1.2

21.5

3,330

Yukon

1.5

26.7

3,300

Northwest Territories

3.6

24.6

3,000

Nunavut

1.8

11.4

4,000

Source: CANSIM table 111-0039

When RRSP contributions are broken down by metropolitan area, Calgary leads the way, with 29.8 per cent of taxpayers contributing to an RRSP—but as with the total number of contributors for Alberta, this number decreased in 2015. The four BC metropolitan areas included in the report, all showed an increase in average contributions from 2014. Here’s how BC compared to the national average.

RRSP contributions by BC metropolitan area

 

2014 to 2015
(% change)

2015 tax filers
(% contributors)

2015 median
($ contributed)

Canada

0.3

22.9

3,000

Kelowna

2.2

19.8

3,000

Abbotsford–Mission

2.6

18.3

2,600

Vancouver

1.1

23.4

3,760

Victoria

1.5

22.6

2,960

Source: CANSIM table 111-0039

Trends in the use of RRSPs and TFSAs

While 2015 saw an increase in the number of Canadian taxpayers who contributed to an RRSP, a recent study by Statistics Canada showed that was not the case from 2000 to 2013. During this period, the country saw a steady decline in RRSP contributions by taxpayers aged 25–54. RRSP withdrawals also increased during this period, largely due to an increase in defaults on RRSP repayments under the Home Buyers’ Plan.

Unsurprisingly, the largest decline in RRSP contributions coincided with the federal government’s introduction of tax-free savings accounts (TFSAs) and the 2008–09 economic recession. Even though contributions that would historically have been made to RRSPs went to TFSAs during these years; almost half of these funds (41 per cent) were later withdrawn.

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