Pooled Registered Pension Plans Helping Canadians bridge the retirement savings gap.

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%


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


Ontario Results:

Interested Not Interested I don't know

60.1%

27.5%

11.6%


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 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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64.8%

19.1% 16.2%

Employee Interest?

Question: How interested do you think your employees would be in a PRPP?



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

Pooled Registered Pension Plans Helping Canadians bridge the retirement savings gap.

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