Risk sharing in retirement is a hot topic in Canada and Britain. Here's my presentation to Canadian Employers to be given in New York on May 26th

1. Who’s Risk Is It Anyway?
May 27, 2015
Henry Tapper
Simon Nelson, FCIA FSA

2. Four Worries and a Funeral
De-risking or re-risking?
Can we democratize ownership?
Does choice equal freedom?
Is the State provider or facilitator?
And did this man kill British pensions?

3. Questions for Today
1. Is there a retirement design that better balances a
guaranteed pension and a pension delivered
through ‘best intentions’?
2. Can we ‘nudge’ people towards better behaviours
when it comes to their financial security in
retirement? How much choice do they need, want
and can cope with?
3. What can Canadians learn from Britain’s
experiences (and vice-versa)?

4. Challenges with Traditional DB Plans
Low interest rates,
volatile equity markets,
maturing plans,
increasing longevity
Unacceptable volatility
and asymmetrical risks
for plan sponsors
Mark-to-market
accounting
Seen as a public sector
employee ‘perk’
Relief measures are
short-term solutions;
don’t address underlying
issues
Complex regulatory
environment

5. Challenges with Traditional CAP Plans
Predictable costs, but
unpredictable benefits in
retirement
Members exposed to
significant risks, especially in
retirement
Complex decisions left to
plan members; ‘choice
overload’
Few efficient ‘decumulation’
products
Few benefits from pooling of
costs/risks, reducing
efficiency
First ‘cohort’ of career-DC
employees yet to reach
retirement

6. 1. De-risking corporate pensions

7. But who will take on the risk?

8. Discussion #1

9. 2. Democratising Pension Ownership
1. Triple lock on state pensions guarantees a
minimum 2.5% pension increase p.a.
2. Public sector DB subject
3. Private sector DB protected by pension
protection fund
4. Auto-enrolled DC pensions for 10m new
workers

10. 1.2m DC pensions to be set up in next 3 years

11. But can employers help transfer the risk?
1.2m new employers set up
workplace pensions

13. Where is Canada today?
1. Private Sector and Not for Profit
2. Public Sector
3. Multi-Employer Trades

14. Where is Canada today?
Private Sector and Not for Profit
• Legacy mode for DB (freezes and de-
risking)
• Movement to fixed cost DC

15. Where is Canada today?
Public Sector (with solvency
exemptions)
• Municipal, Hospitals, University and Education sectors
• Generally unionized environment
• Lots of design and governance changes
• Consolidation of plans is the current theme

16. Where is Canada today?
Multi-Employer Trades
• Temporary solvency exemptions
• Still a strong DB landscape
• Need permanent funding rule solutions in
in most jurisdictions

17. Legislative/Regulatory Response
1. Minimum Funding
2. Traditional MEPPs
3. Termination Benefits
4. Hurdles for Innovation

18. Legislative/Regulatory Response
Minimum
Funding
• Not much help for
traditional DB
• Solvency relief and
exemptions for some
• Minimal progress
towards alternative
funding regimes
Traditional
MEPPs
• Solvency exemptions
exemptions (for now)

19. Legislative/Regulatory Response
Termination
Benefits
• Concepts of being ‘asset
‘asset share based’
Hurdles for
Innovation
• Regulatory change is slow

20. Discussion #2

21. Where is Britain headed?
Drawdown
Cash
Annuity
Freedom
and choice
Pension Wise
State
funded
guidance

22. 3. Granting pension freedoms

23. Plenty of information

24. But does Information equal knowledge?

25. Where is Canada headed?
Innovative
Designs
Workplace
Plans
Expansions and
and
Enhancements
State Plans

26. Workplace Plans: Innovation
Push for regulators to be open to
new types of pension deals and
transitional approaches
Jointly Trusteed arrangements
Consolidation of plans and/or
assets

27. Workplace Plans: Target Benefit Plans
 TBPs, or ‘defined ambition’ plans, aim to combine
the best of DB and DC (and remove the worst of
both)
 Typical features:
1. Fixed contributions
2. Members receive a target DB-type benefit, with few (or
no) guarantees
3. Benefits may be adjusted up or down to balance funding
 Not currently accommodated by most jurisdictions’
regulations

28. Discussion #3

29. 4. The State and British Pensions
 Providing -
 Single state pension – simpler but less ambitious
 A safety net for insolvent DB covenants
 Compelling –
 employers to auto-enrol staff in workplace
 Insurers to manage legacy and improve governance
 Protecting–
 the consumer with charge caps
 Educating -
 at retirement– Pension Wise
 Facilitating risk sharing –
 Not New Brunswick (yet)
 Encouraging reluctant employers
 Enabling collective decumulation

30. State Plans
 Hot political issue
 Significant debate over extent of Canadian
retirement crisis
 Importance of state plans in Canada stems from:
 Poor usage of existing retirement savings vehicles
(RRSPs)
 Few employees covered by workplace pension plans
 Limited government support programs for middle
class

31. State Plans - CPP
Enhance Canada Pension Plan (CPP)
 2013 efforts to enhance CPP stalled
 Is now likely to be part of 2015 Federal election
platforms
 Provincial support is needed (but is mixed)

32. State Plans - ORPP
2. Development of Ontario Retirement Pension Plan
(ORPP)
 Belief that Ontario would prefer CPP enhancements; stalls have
led to proposal of “Made in Ontario” MEPP-like mandatory
public pension plan for Ontario employees,
 Target is to replace15% of an employee’s earnings in retirement
 Would supplement existing pension arrangements, personal
savings, CPP, OAS and GIS
 Grappling with questions on implementation and design
– particularly breadth of scope, earnings thresholds and self-employed
citizens

33. Discussion #4

34. Wrap Up
Who’s risk is it anyway?