Benefits Canada magazine exists, at least in part, to inform the benefits and retirement services community—consultants, advisors, providers and, most important, employers—about key issues affecting the delivery of group retirement and benefits programs in Canada. On balance, it is well informed and serves a critical role as an information source for benefits professionals. In its November editorial, “Don’t Hate the ORPP,” it fell far short of that important standard.
For starters, it makes assertions that simply cannot be supported by current fact. “…the ORPP will be low cost…” Benefits Canada surely cannot know the cost of ORPP when the premier herself said Aug. 11 that the costs are not yet known. And low cost compared to what? Retail mutual funds? That is an inappropriate comparison for many reasons.
Let’s look at what ORPP might cost. Let’s assume it will cost the same as CPP, which has been in place for nearly 40 years. Frankly, it would do well to get there in 20 or 30 years when it has some scale. CPP costs exceed 100 basis points (per the 2014 CPP annual report), even with the significant scale advantage of approximately 17 million members.
By comparison, the average cost of a workplace retirement savings plan, which we administer, with more than 1,000 members, is 40 basis points. With CPP (or ORPP) you don’t get annual statements, you don’t get a robust transactional website available 24/7, you don’t get a call centre answering 70% of calls within 20 seconds and 80% first-call resolution, and you don’t get a mobile app to access your account and transfer money into this low-cost platform. If we are going to compare the value proposition, let’s go apples to apples.
The editorial goes on to conclude that investors tend to buy high and sell low, citing a U.S. study to support that hypothesis. A quick call to any of the capital accumulation plan providers in Canada would have yielded a radically different set of facts. When the market was in free fall in 2008 and into early 2009, at Sun Life we observed that approximately $200 million of invested assets, out of $35 billion, was moved from an active mandate to cash or money market. That is less than 1%—hardly cause for grave concern. With the rapid expansion in the use of target date funds in Canada since then, we would expect a further reduction in that investor behaviour. In DC plans in Canada, inertia is a powerful force. Biweekly payroll contributions continue through all market cycles, effectively dollar cost averaging the investors’ market exposure. This is a good thing, and among the many positive attributes of the workplace savings system available in Canada.
The capital accumulation plan industry in Canada is justifiably proud of what we do, working with more than four million Canadians to help them prepare for retirement.
We are low cost, with leading technology, and together with our plan sponsors we are creating excellent retirement outcomes. And we are doing it now! ORPP won’t be able to do that for many years to come. We thought Benefits Canada should know this.
Thomas G. Reid, Senior Vice-president, Group Retirement Services, Sun Life Financial Canada
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