pooled registered pension plans helping canadians bridge the retirement savings gap
TRANSCRIPT
Pooled Registered Pension Plans
Helping Canadians bridge the retirement savings gap
Your Presentation Team
Mathias Hartpence, Sun Life Financial, Director of Public Affairs Canada and International
Dave McLellan, Sun Life Financial, Vice-President of Market Development
Matt Miles, Manulife Financial, Assistant Vice-President of Distribution
Kim Duxbury, Sun Life Financial, Assistant Vice-President of Product and Research
Nancy Campbell, Manulife Financial, Assistant Vice-President of Market Development
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Agenda
Current retirement savings landscape Pooled Registered Pension Plan (PRPP) design Status of government introduction of PRPPs Reaction to PRPPs
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Current Workplace Retirement Plans
40% of all businesses surveyed currently offer some type of workplace savings plan
The smaller the company, the less likely they are to have a plan
Source: Leger Marketing survey of SMEs, conducted on behalf of CLHIA, December 2011
2-9 10-19 20-49 50-99 100-199 200-499
13.8%
20.6%
39.0% 40.8%
53.7%
66.6%
% of Employers with a Workplace Plan
# of Employees
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Options Explored By Governments
1. Maintain status quo and educate Canadians about savings options available today
2. National, voluntary supplement to CPP
3. Expand CPP by increasing premiums and benefits
4. Pooled Registered Pension Plans
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Policy Gap
Canada’s retirement income system works fairly well… YET economic volatility, governments’ fiscal restraint and Canada’s
labour crunch increasingly constrain the pension system.
More needs to be done to assist those who are not saving enough 3.5 million Canadians who are self-employed or employees of
small and mid-size employers that do not offer workplace retirement savings plans.
And sound policy must ensure equal access to affordable retirement savings plans in the workplace for all
PRPP-enabling legislation federally and provincially is a crucial and needed step in the right direction.
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Why Is CPP Not The Easy Answer?
Difficulty in gaining Federal and provincial agreement Infrastructure changes to support Increased employer contribution may negatively impact
businesses and employees Lower investment/expansion
— 35% of companies will reduce investment in their business
Lower wage increases— 40% of companies will freeze/cut salaries
Lower employment
Small business owners are not supportive Business organizations have spoken out against CPP/QPP expansion
CFIB Member Study, 2012CFIB and Chamber of Commerce Press releases
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PRPP - Why It May Be The Answer
Achieves government’s objectives Provide improved coverage
— Auto-enrolment will potentially double employee participation rates
Improve workplace access
Advantages for Employers and their Employees Be ‘low cost’
— For employers (the amount of their time required)— For employees (the fees they pay)
Be simple and easy— For employers to set up and administer day to day — For employees to understand and manage
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PRPP Makes It Easy For Employers
Offered by an Administrator that will: Offer and oversee investment platforms Provide “standard of care” for plan member Deliver member communication and education Manage administration of plan
Employer accountabilities Select Administrator Decide whether or not to contribute Deduct and remit contributions to Administrator Present plan to employees
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… and Employees
Employees’ role Enroll and contribute May be streamlined by features that permit auto-enrolment and
auto-escalation Read communications, ask questions and seek advice when needed
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Federal PRPP Introduction
In June 2012, Bill C-25, the Pooled Registered Pension Plans (PRPPs) Act was passed by the Federal Government
Bill C-25 receives Royal Assent by Senate 1st and 2nd phase of regulations released in Royal Gazette Tax changes and final regulations expected in Jan. 2013
Provinces decide their version of the PRPP Federal and Provincial Finance Ministers meeting in
December PRPP included on agenda
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Provincial PRPP Introduction
Ontario seeks clarification from Federal Government April 2012 budget sought clarification on fiduciary framework,
flexibility, cost and licensing regime
Alberta Positive indication that mandatory PRPP program is being
considered
Nova Scotia Working with other Atlantic provinces for harmonized program
across East
Quebec leads March 2012 Quebec budget provides key principles and details on
Voluntary Retirement Savings Plan (VRSP) Bill C-80 introduced in National Assembly as foundation of VRSP
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Understanding Universal Access
For employers Simply means facilitating savings in the workplace by employees Employers not required to contribute – unless they choose to
For employees Automatically enrolled, but retain right to opt out Used successfully by many countries globally Significant increase in coverage realized Opt out rates generally 10-20% participation = 80-90%
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New Zealand KiwiSaver introduced in 2007 –
new hires automatically enrolled Within 3 years, they had 1.2
million participants (35% participation) – this was not expected until 2015
United States Fidelity is largest provider for
workplace savings plans (20,000 workplace plans and 12 million employees saving via payroll)
Participation rate before auto-enrolment legislation = 64.9%
After auto-enrolment increased to 82.1%
Universal Access – Looking Globally
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An Effective Nudge Can Enhance Participation Organ donation - an every day example of “automatic
enrolment” Spain and France – residents automatically signed up (but
can opt out if desired) Participation in program: Spain - 80% France - 70%
Canada – residents must voluntarily decide to sign up 13.5% participation
Source: Impact of Presumed Consent Legislation, Harvard University and Sebastien Gay Univeresity of Chicago December 200515
Support For Universal Access
Agree Disagree I don't know
72.1%
24.8%
3.1%
Agree Disagree I don't know
71.4%
24.8%
3.9%
Source: Leger Marketing survey of SMEs, conducted on behalf of CLHIA, December 2011
Ontario Results:
National Results:
Question: Given this new low cost savings vehicle, how strongly do you agree or disagree that all employers should be required to offer some form of retirement savings plan to employees?
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Employer Interest In Offering a PRPP
Source: Leger Marketing survey of SMEs, conducted on behalf of CLHIA, December 2011
Ontario Results:
Interested Not Interested I don't know
60.1%
27.5%
11.6%
Interested Not Interested I don't know
63.8%
23.8%11.8%National Results:
Question: PRPPs will be government-regulated, private-sector pension plans that will have negligible costs and administration - essentially no more than payroll deductions. There will not be any mandatory contributions or pension funding obligations for employers. Knowing this, how interested are you in providing PRPPs to your employees?
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Likely Not Likely I don't know
72.5%
23.2%
4.1%
Likely Not Likely I don't know
76.1%
18.1%
5.8%
Employer Interest In Making Contributions? Question: You indicated being interested in providing your employees
access to a PRPP. How likely are you to look at ways your business could contribute to the plan over and above what the employee puts in it?
Ontario Results:
National Results:
Source: Leger Marketing survey of SMEs, conducted on behalf of CLHIA, December 201118
Source: Leger Marketing survey of SMEs, conducted on behalf of CLHIA, December 2011 - Ontario
Many small and medium sized employers see a workplace plan as a way to attract new employees and retain key employees
Ontario is slightly higher than national average
Potential Employee Attraction/Retention Strategy
Yes67%
No29%
I don't know4%
Yes66%
No31%
I don't know3%
Ontario Nationally
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Interested Not Interested I don't know
64.8%
19.1% 16.2%
Employee Interest?
Question: How interested do you think your employees would be in a PRPP?
Source: Leger Marketing survey of SMEs, conducted on behalf of CLHIA, December 2011
Interested Not Interested I don't know
64.3%
21.3%14.3%
Ontario Results:
National Results:
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PRPP Sentiment
Sentiment is generally positive or neutral amongst news channels, blogs, twitter and social media sites
21Source:Sysomos September 2012
Positive
Neutral
Negative
What The Press Is SayingPositive With the right policy decisions, PRPPs
will go a long way towards increasing retirement security for millions of Canadians.Design Key to Canada’s Pension Plan, Robert Pozen, Harvard Business School, Oct. 23, 2011
“The real reasons why small businesses are not dedicating more to employee retirement savings plans is that they cannot afford it and that plans are too complicated and burdensome to set up and administer. The good news is that the PRPP helps us move ahead on both fronts.”
Lower Costs of PRPPs Welcome, Dan Kelly, Senior-vice president, Canadian Federation of Independent Business (CFIB), Financial Post, Dec. 5, 2011
“Provincial and federal finance ministers decided PRPPs are the best direction to go as they can be implemented easily and the effects felt sooner by the 50 per cent of Canadians working in the private sector…”
Freedom from CPP, National Post, Dec. 8, 2011
Skeptical “The structure and idea [of the PRPP] is
fine, but the defaults are all wrong,” Hamilton said. “It’s fine for wealthy people and those making way above the average worker. [But], if we exploit low-income earners, it won’t be good for anyone.”Malcolm Hamilton, Mercer
Thus, strong and focused political motivators are required for forward political movement on any particular pension initiative. I believe the focus on PRPPs has now been lost.Greg Hurst, Greg Hurst & Associates
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Thank you