What did OPB do to help members make sound pension decisions and improve their understanding of their financial circumstances?
We are committed to helping you create a strong plan for your future. To us, that requires more than just keeping the PSPP strong; it means helping you build on your overall financial and retirement planning skills and navigate key pension decisions so you can build a stronger retirement plan.
That’s why we provide access to in-house Certified Financial Planners®. This year, our Advisors met with more than 2,800 members, helping them understand how their individual pension decisions could contribute to their current and future financial plans. We believe this perspective is critical for members to have the confidence that they’re making the right decision based on their goals and unique circumstances.
We believe proactive education and communication are key to helping members build a stronger future, which is why we engage members in their retirement planning process early on. We call every new member to answer any questions they have, discuss potential buyback or transfer opportunities and ensure they know about the advisory services and online retirement planning tools we have.
In 2017, we also introduced advisory articles in both our member and retired member newsletters. We also piloted new advisory workshops that incorporate broader financial planning exercises to help members understand how their pension affects their overall financial plan. The sessions were really well received, and we’ll be looking at rolling them out more broadly in 2018 and 2019. Make sure to check out our sessions in our online education calendar in e-services.
What progress did you make on pension modernization in 2017?
In 2017, we officially launched our multi-year pension modernization initiative to further improve the experience for our members. One of our key goals with this initiative is to better understand our members’ needs so we can deliver the planning tools and services they require.
Given that our current systems were put in place in the 1990s, we think now is the right time to retire them and look at how we can modernize our systems to keep our technology current and secure, and to better meet our clients’ needs.
We recognize that this is a significant undertaking that requires careful planning and due diligence – we have a duty to get it right. That’s why in 2017 we focused our efforts on establishing a solid foundation for this initiative, which included developing a clear business transformation strategy and looking at the best way to set up the program. We met with a number of our peers who’ve undergone transformational initiatives to discuss their experiences and approaches, and we came away with some really great insight and learnings from those discussions.
Over the coming year, we will be looking for opportunities to involve our members in the process to find out what they like about our current services and tools, and what they would like to see going forward. If you would like to participate in feedback sessions with us to help guide our journey, please let us know at email@example.com.
Why are contribution rates increasing when the Plan’s returns have been good over the past few years?
At OPB, our main purpose is to protect the pension promise for current and future members. We carefully monitor the Plan’s health and performance to ensure that our investment strategy is appropriate given the Plan’s pension obligations, our assumptions are accurate and our contribution rates are adequate to fund the benefits going forward.
Further to this, our ongoing analysis shows that the cost of benefits is increasing primarily due to the fact that people are living longer, which is a good thing, but it means we’re paying pensions for longer. When the cost of benefits goes up, the resulting increase needs to be funded by either investment returns or contribution rates. When we look at how to fund the cost of these additional benefits, we need to look not at past returns but at the returns we expect to earn in the future.
Our expectation is that investment returns over the next five to 10 years are going to be lower, which is why we’ve decreased our discount rate over the last two years. We believe this is a prudent step to manage the long-term health of the Plan.
As we lowered our discount rate and strengthened our longevity assumptions to better align the PSPP with our expectations for the future, we also recommended to the Plan Sponsor that it increase contribution rates to strengthen the funding of the pension promise.
Even with this increase, our contribution rates remain among the lowest of the public sector plans in Ontario and continue to provide excellent value for members and employers. The pension promised under the Plan has been maintained.
Why hasn’t the funded status improved much when returns have been strong?
The Plan’s funded status remains very strong at approximately 97%. Pension plans are long-term investors, which means we can’t just focus on what returns are now; we have to make assumptions about what we expect the Plan to experience over the longer term. This leads us to make adjustments to assumptions when expected future economic or demographic conditions change. As explained in CEO Mark Fuller’s letter, in an environment in which interest rates are expected to remain low and assets are priced high, it is prudent to lower our discount rate.
As lifespans have continued to rise, it was imperative that we increase the length of time for which pensions will be paid. Each of these prudent steps adds to the present value of the cost of benefits and so offsets the additional assets generated from our very strong 2017 investment performance. With these changes, we still improved the funded status of the Plan, remain well funded at approximately 97% and have better positioned the Plan to remain well funded into the future.