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2018 YMPE Announced

On November 1st, Canada Revenue Agency announced that the maximum pensionable earnings for 2018 will be $55,900, up from $55,300 in 2017.

Contributors who earn more than $55,900 in 2018 are not required or permitted to make additional contributions to the Canada Pension Plan.

The basic exemption amount for 2018 remains $3,500.

The 2018 contribution rate for employees and employers remain unchanged at 4.95%.

The 2018 contribution rate for self-employed will also remain unchanged at 9.9%.

The 2018 maximum employer and employee contribution to the plan will be $2,593.80, up from $2,564.10 in 2017.

The 2018 maximum self-employed contribution will be $5,187.60, up from $5,128.20 in 2017.

Check out our website for a breakdown of these rates and others.

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Nigerian Pension Reform Success Story

In 2005, Penad had a small part to play in the major pension reform announced in Nigeria in 2003.

The Nigerian government set up a national contributory pension scheme to ensure that all Nigerians had the opportunity to save for retirement and build pension accounts. The basic structure was outside the previous Nigeria Social Insurance Trust Fund, which was not adequately meeting the needs of citizens. The new CPS (Contributory Pension Scheme) mandated that all companies with five or more employees must enroll their workers in the scheme, and people who worked for smaller employers also had the option to join.

Upon joining, a plan member would choose an administrator from several available and would then be set up with a retirement savings account. This account would be off-limits until retirement, at which point members could draw a pension based on their contributions.

Penad’s role in all of this was to act as an advisor to a group setting up one of the administration companies. Our CEO Frank Price and our President Louise Price traveled to Lagos for meetings and to present a keynote at a conference.

Cover image from Penad’s Signature magazine after conference in Lagos.

Today, thirteen years later, the Nigerian experiment is a big success. Over 7.4 million people from 200,000 companies have joined the CPS, and pension fund assets have grown to over N6.4 trillion, with N30 billion in monthly contributions flowing into the scheme. Over 184,000 people have already retired under the plan and are drawing out pension.

A detailed summary is available here: Overview of Nigerian Pension Scheme Stats

 

 

 

 

 

 

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Would You Rather Own 31% of a Success or 81% of a Flop? Bombardier’s Story

Donald Trump promised to put American workers and companies first, but now it appears he has created a monster new competitor for one of America’s leading firms — Boeing.

It was announced today that Canada’s Bombardier and Europe’s Airbus (both Boeing competitors) have agreed to join hands in a strategic alliance to manufacture, market, and support Bombardier’s C Series jets, a move the Wall Street Journal is saying “could be the biggest shake-up of the commercial jetliner business in 30 years”.

Airbus will acquire 50.1% of the C Series line, while Bombardier retains 31% and the Quebec government, which invested heavily in Bombardier, gets the rest. This is a win for Bombardier as they have been struggling to sell the C Series due to the company’s shaky financial state, and Airbus gets control of one of the most exciting new air-frames for the medium range market, which will basically blow Boeing’s 737 out of the water.

Driving the deal is the fact that Airbus has manufacturing capacity in the USA, which will allow the C Series to be manufactured in America for American clients, thereby circumventing the proposed punitive duties recently announced by the Trump administration.

Will this not create jobs in America, a prime directive of the Trump platform? Yes, but in fact something like 50% of the C Series jobs were in the USA in any event due to the transnational nature of the Bombardier supply chain (the engines for the C Series are made in USA). So, Americans may or may not gain a few jobs working for Airbus, but these will presumably be greatly offset if the C Series becomes a big success at the expense of Boeing, as seems more likely now. Boeing will sell far fewer 737s if the Airbus C Series becomes a big hit.

Will this “make America great again”? We will have to wait and see. Bombardier has 350 orders for the C Series but sales slipped in the past year due to uncertainty if the company would survive. Now that Airbus effectively owns the C Series, airlines around the world can step up and place orders, knowing the product will be supported by one of the largest aircraft manufacturers in the world. Bombardier is hoping to sell 3,500 C Series jets in the coming 20 years.

For a head-to-head comparison of the C Series and the 737, click this link from Forbes: Compare C Series and 737

Business Insider has a great overview of Boeing’s folly here: Business Insider on how Boeing Screwed Up

Bombardier has not said how this move will affect jobs or workers’ pensions in Canada, but Airbus has agreed that all C Series planes not destined for the US market will continue to be made in Canada. Presumably Bombardier stakeholders will benefit, especially if Airbus is successful in pushing C Series sales to a whole new level. Bombardier did the hard work of creating the prototype and bringing it to market; now Airbus can bring it to a full market roll out. This looks like a win/win for both companies, and a big lose/lose for Boeing. They will not only sell fewer 737s in America, they will also face a much stronger competitor worldwide.

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Expanded Canada Pension Plan Benefits Who, Exactly?

Robert Brown, a fellow with the Canadian Institute of Actuaries, wonders in this post (see link below) how the recent expansion to the Canada Pension Plan will impact various levels of beneficiaries.

One would expect, based on the press and government messaging at the time, that dramatically increasing benefits would benefit everyone (a rising tide lifts all boats, after all).

Not in this case, it appears. The lower income Canadians will basically see little benefit and in fact might even do worse under the new formula. Here is the article (click to open):

Robert Brown: Low-income workers may lose from expanded Canada Pension Plan

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CPBI Workshop: Plan Sponsor View on the Future of Employee Benefits

The following notes were taken at Forum 2017, the annual convention of CPBI (Canadian Pension and Benefits Institute) held June 5-7 at the Delta Hotel in Winnipeg with the theme: “Thriving In a Climate of Change”.

Panel: Glen Anderson (Staff Officer Benefits, Manitoba Teachers’ Society) / Blair Richards (CEO, Halifax Port), Kim Siddall (Associate VP, Aon Hewitt), Tyler Smith (Senior Consultant, Coughlin & Associates) / Moderator: Glenn Kauth (Editor, Benefits Canada)

Key Points

DC plans are not meeting the needs of people. DB is the only way to go. Members are simply not qualified to make investment decisions, and the result is that taxpayers will pick up the tab when DC retirees run out of money and end up on social assistance.

DB plans preserve the accrued value. Solvency ratios are generally healthy these days. Target benefit plans are very ad hoc in comparison and will quite possibly not meet the retirement goals of their members.

From a survey of the expectations of C-Suite executives: “Government will take over the job of retirement savings and eventually create a national drug plan.”

Regarding group benefits, it is essential to give employees more say in how to use their benefit accounts. A worker without children should, for example, have the option to spend benefits on elder care. Technology can make this possible.

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CPBI Workshop: Pension Governance

The following notes were taken at Forum 2017, the annual convention of CPBI (Canadian Pension and Benefits Institute) held June 5-7 at the Delta Hotel in Winnipeg with the theme: “Thriving In a Climate of Change”.

Presenter: Zaheed Jiwani, Senior Consultant, Eckler

Key Points

What are the key success factors of an organization?

  1. Attract good people.
  2. Manage their careers.
  3. Keep them productive.

A pension plan is obviously important to helping attract and retain good people. But even with a pension plan, a problem arises if the pension is insufficient for retirement or if the members don’t full understand how much pension they need to retire.

In both scenarios, workers typically stay around longer than they need to, which blocks the career growth of younger workers. Or they waste time and productivity worrying about money.

Everyone assumes that 70-percent of your final income is needed for retirement. In fact, academic studies show this is not correct, as many factors affect retirement living standards.

The LSRR (Living Standard Replacement Rate) is an individualized metric. Every worker needs counseling to help them make the best choices for their unique situation.

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CPBI Workshop: Pension Regulator Panel Discussion

The following notes were taken at Forum 2017, the annual convention of CPBI (Canadian Pension and Benefits Institute) held June 5-7 at the Delta Hotel in Winnipeg with the theme: “Thriving In a Climate of Change”.

Panel: Paul Owens (Deputy Superintendent of Pensions, Alberta) / Lester Wong (Deputy Superintendent of Pensions, Ontario) / Jennifer Sutherland Green (Superintendent of Pensions, New Brunswick) / Moderator: Tyler Smith (Senior Consultant, Coughlin & Associates)

Key Points

In Ontario,

  • All new plans in past few years are DC.
  • Currently, plans are split 50/50 DB/DC.
  • 85-percent of members are covered by DB.
  • 95-percent of money is in DB.

As a result, regulators are paying attention to make sure DC is better managed so that members are better served and employers have a better handle on liability and risk. Sometimes people have too much choice and not enough direction.

In Alberta,

  • There are 750 pension plans, of which 500 are DC.
  • 95-percent of money is in DB plans.
  • DB plans are popular with Alberta workers. Half the DB plans are still fully open and a few brand-new DB plans have been launched in the past few years.

The regulators are concerned that average plan members do not have the tools or knowledge or experience to make good investment choices.

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CPBI Workshop: How and Why to Take Care of Your Employees’ Sleep

The following notes were taken at Forum 2017, the annual convention of CPBI (Canadian Pension and Benefits Institute) held June 5-7 at the Delta Hotel in Winnipeg with the theme: “Thriving In a Climate of Change”.

Presenters: Josee Dixon, Desjardins / Bradley Smith, HALEO Preventive Health Solutions Inc.

Key Points
Sleep disorders such as insomnia cost employers an average of $5,000 / year in lost productivity for each employee who has such a disorder, and yet treatment only costs an average of $500 / year, which points to a huge untapped ROI for employers.

An employee with sleep apnea, for example, can wake up over one hundred times in a single hour, making restful sleep impossible.

Sleep problems lead to higher rates of absenteeism and presenteeism (when an employee is present but not actually contributing or doing their job). People who suffer from sleep problems also have higher rates of hypertension, diabetes, mental health problems, and stress.

The medical community is not equipped to address sleep issues. GPs are not trained to treat sleep issues, and Canada has one sleep specialist for every 25,000 people with sleep problems.

Some employers encourage employees to take short power naps. For example, a 3-5 minute power nap before 3:00 pm has been demonstrated to reduce stress, reduce errors, and increase productivity. It also has as much benefit as a 20-minute nap. But it is obviously better to help people get a better night’s sleep if possible, making napping unnecessary.

Millions of people use medications to address sleep problems, but there are drug-free therapies that do the job just as well.

HALEO is a Canadian start-up that helps employers support better employee sleep. Their approach is:

  • Evidence-based: they work with professionals and a major clinic to deliver cognitive behavioural therapy.
  • Supportive: they ensure clients have support throughout the care pathway.
  • Accessible: they have developed a mobile app to support clients directly.
  • Simple: ERs can seamlessly roll this solution out to their entire workforce.

The HALEO solution begins with an app-based survey to identify employees with sleep problems. This sub-group then receives telephone support and diagnostic treatment plans via the Sleep Health Institute. Diagnosis and treatment then follow via secure video conferencing with a therapist and secure private sleep coaching.

Early results are very promising with an ROI as great as $20 for every dollar spent.

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CPBI Workshop: Benefiting in the Platform Economy

The following notes were taken at Forum 2017, the annual convention of CPBI (Canadian Pension and Benefits Institute) held June 5-7 at the Delta Hotel in Winnipeg with the theme: “Thriving In a Climate of Change”.

Presenter: Lisa Callaghan, Manulife

Key Points

Disruption is coming to the group benefits landscape in the form of platform-based exchanges offered by technology companies rather than insurance companies.

Insurers are typically well-established, stable, and low in volatility. Insure-techs (tech companies offering insurance platforms) are none of these things, which gives them a potential opening to be nimble and innovative.

Insurers offer a risk pool and price their products via underwriting. Insure-techs look to offer choice to market places and are comfortable with upsetting the risk model.

The Canadian healthcare market sees healthcare as a right and the insurers govern themselves accordingly. Insure-techs see only consumers and seek to disrupt the current paradigms.

Consumers are beginning to warm to platforms and are starting to have e-commerce expectations. Insure-techs are looking for ways to offer choices.

Investment in Insure-techs by VCs has grown 7-fold over the past two years. Big changes are coming.

Insure-techs look to enter the market in the following ways:

  • micro-insurance / on-demand insurance (e.g., insure your camera for the ten days you go to Thailand for a vacation)
  • peer to peer products
  • leverage data to unlock efficiencies. EG use AI for underwriting and risk profiles.
  • low-margin / high-volume
  • automatic administration
  • digital platforms to reach consumers
  • B2B P&C packages
  • corporate platforms (instant quotes / no need for advisors / automatic enrollment / HR integration / member payments / member inquiries and communications via Smartphone)

One drawback of platform products is that more choice is not always better, and informed choice is more difficult to attain as people often choose based on price not value.

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CPBI Workshop: DB Pension Plans – Is Sustainability a Myth?

The following notes were taken at Forum 2017, the annual convention of CPBI (Canadian Pension and Benefits Institute) held June 5-7 at the Delta Hotel in Winnipeg with the theme: “Thriving In a Climate of Change”.

Presenter: Paul Lai Fatt, Partner, Morneau Shepell

Key Points

Sustainability is simply about making adjustments.
-change the money coming in,
-change future benefits (e.g., water down benefits for future cohorts)
-change past benefits

If you do all of these, almost any DB plan can be sustainable. However, that does not mean the stakeholders will all be happy!

The fact is, pension plan members all have different expectations about what payments they will be required to make and what benefits they will receive, but in the real world, nothing is carved in stone.

Therefore, the key is “right process”, where you adequately explain the risks and changes to stakeholders. It is not about measuring risk, but planning for it.

There are still a few new DB plans coming online from time to time, but most plan sponsors are moving to Target Benefit Plans.

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