Longevity risks affect all plan sponsors
Canadians are living longer than ever—a fact confirmed in updated mortality tables recently released by the Canadian Institute of Actuaries. This trend threatens sponsors of both DB and DC plans.
The updated mortality figures show that the life expectancy of a 60-year-old Canadian male has increased by 2.9 years—from 24.4 to 27.3 years—compared with figures in previous pension mortality tables. The life expectancy of a 60-year-old woman has increased by 2.7 years, from 26.7 to 29.4 years.
While longer lives are good news for individuals, they pose risks for DB plan sponsors. The first risk associated with the release of the new mortality tables is that sponsors could be using outdated figures, says Gavin Benjamin, a senior retirement consultant with Towers Watson. Another problem is that DB plan sponsors will need to cover more retirees for longer periods of time. To manage those risks, sponsors can offer workers who are retiring the option of a lump sum instead of a monthly pension, says Benjamin. Sponsors can also shift the risk to insurers through the plan by purchasing annuities for its retirees, he adds.
Although in DC plan members absorb most of the risks, increased longevity ultimately affects these sponsors, too. While members understand investment risks, they’re ignorant of the longevity risk, says Michelle Loder, Towers Watson’s Canadian DC leader. As their retirement income goals slip away from them, workers are often forced to delay retirement, so firms can end up with many elderly employees who continue to work not because they want to but because they can’t afford to retire, Loder says, adding that this could hurt productivity in certain industries. That’s why DC sponsors need to examine the longevity prospects of their current employees and ensure that these prospects are aligned with their workforce plans, Loder explains. Then, depending on their goals, employers can take steps such as introducing auto-enrollment and improving default fund options, she adds.
Market value of pension funds rises
The collective market value of Canada’s employer-sponsored pension funds hit $1.2 trillion at the end of Q1 in 2013, up 3.9% from Q4 2012, according to recent Statistics Canada figures.
The numbers refer only to trusteed pension plans, which cover about five million Canadian employees. For these plans, the value of investments in stocks grew 4.5% in Q1, outpacing the 3.1% gain in the value of shares on the Toronto Stock Exchange during the same period.
The value of real estate investments grew 3.7%, while the value of bond holdings edged down 0.2%. Foreign investments increased in value by 6.9%. The share of pension fund assets held in foreign investments grew to a third of total pension assets.
Pension fund revenues amounted to $36.1 billion in Q1—the same as in Q4 2012. But expenditures fell 3.6% to $15.5 billion, increasing net income for a third consecutive quarter, to $20.6 billion.
This month in numbers
10.2%: percentage of assets that Canadian pension funds allocated to domestic real estate in 2012—the highest on record — Pension Investment Association of Canada
17.9: the number of sick days, on average, taken by federal government employees for the 2011/12 period—almost three times more than the number of sick days private sector workers took — Treasury Board of Canada
Face-to-Face Drug Plan Management
Dec. 4, 2013
Fairmont Royal York, Toronto
Now, more than ever, employers need to manage their drug spend effectively and understand the return on their investment. But while new designs and distribution options may offer savings for drug plan sponsors, it’s also important to consider their impact on members. This half-day event will help plan sponsors to develop programs that meet their needs while also improving health outcomes for their plan members.
For details and to register, go to benefitscanada.com/conferences
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