Your Plan with CPO Peter Shena

From your perspective as Chief Pension Officer, what was OPB’s most significant achievement in 2016? What event(s) had the greatest impact on the organization and its members?

At OPB, we believe that providing excellent client service goes beyond just processing transactions for members and responding to their questions. We believe it means protecting our members by helping them make sound decisions about their pension. To do that effectively, members need to understand how their pension decision fits into the broader financial plan. That’s why we launched Advisory Services, which provides members with access to a team of in-house Advisors who are Certified Financial Planners®.

In 2016, we saw a record increase in service demand from our members from enrolments right through to retirements (with almost double the number of pensions we usually set up). I am extremely proud of how we rose to the challenge to meet our members’ needs. Not only did we continue to provide our members with excellent service and transaction support, but our Advisors met one-on-one with just over 3,000 members to help them navigate critical pension decisions in the context of their broader financial and life circumstances.

For us, this year really demonstrated the value that our Advisory Services offer our members – a change to post-retirement insured benefits had many members wondering whether this was the right year for them to retire. Our Advisors met with every member who asked for help with that decision to review their retirement goals, their overall financial and health circumstances and the impact of retiring now versus later. Our goal is to help the member make the right decision for them.

How does financial literacy impact members’ ability to make sound decisions about their pension?

When we first launched Advisory Services, we were driven by the belief that for our members to make informed decisions, they need to understand how their pension fits into their overall financial and life circumstances. To help members with this, we introduced in-house Advisors who are Certified Financial Planners®.

Over the past two years, our Advisors have met with more than 5,000 members one-on-one. Through those meetings, we’ve realized that we have an opportunity not just to help our members understand their pension and build their retirement literacy, but also to help them improve their overall financial literacy. Both are key to members being able to make sound decisions about their pension because they help members understand how their pension fits into their broader financial plan.

We’re also working to help members understand that retirement planning shouldn’t be left until their 40s or 50s. The earlier you start planning and setting retirement goals, the easier it is to achieve them and to identify if you’re off track and need to make adjustments.

In 2016, we developed new pension education sessions for members in the early stages of their career that incorporated key financial planning concepts that were relevant to them and helped them understand how their PSPP pension fits into their broader financial plan. They were very well received and we are now looking to roll out these sessions more broadly. As we continue to evolve our Advisory Services, we will be expanding our client education and communication offerings to help our members build both their financial and pension literacy – helping protect their future.

In 2017, OPB will officially start Pension Modernization. What does this mean and how will it affect members?

Pension Modernization is the name of the project we are initiating to review, develop and implement a pension administration system for the future, one that will allow us to meet the evolving needs of our clients and stakeholders and ensure our technology remains current and secure. Our existing pension administration systems are nearing the end of their life cycle. Since they were put in place in the early 1990s, the Plan membership has grown, and we have introduced digital tools and services to better serve our members. This legacy system puts limits on how responsive OPB can be in providing service to our members, especially in terms of introducing new digital tools that can enhance the client experience.

Replacing our systems will take several years and will require a significant capital investment to ensure what we implement will meet our current needs and what we envision our members will need in the future. While we do not yet have a timeline we can share for this rollout, we want to ensure our members that much of this process will take place behind the scenes and will not affect our ability to continue providing the excellent client service our members expect from us.

This project is somewhat pressing, but because of other priorities we were not able to commit the people and capital resources we needed until this year. We have been working with our peers who have gone through similar projects over the last few years – they have been extremely helpful to us and have shared their learnings from this very complex undertaking.

How are OPB’s systems and technology upgrades going to improve service for clients?

While we’ve already introduced a number of online services, modernizing our systems will allow us to improve the client experience by enhancing the online functions, tools and services we offer. Additionally, as part of our modernization process, we will be reviewing our business processes to identify where they can be re-engineered to be more efficient and to improve the client experience. The core pension systems are aged, inefficient and close to end-of-life, which means they cannot support new technologies being used to advance our digital strategy. If we are to continue to improve our members’ experience we need to upgrade our systems.

Can you tell us about the preliminary findings of the long-term funding study, and what impact those findings may have on OPB and its members?

We are committed to protecting the pension promise for our members – maintaining benefits and affordable contribution rates. To do this, we need to closely monitor the cost of providing benefits to Plan members and whether the current contribution rates are adequate to fund the benefits the Plan provides. We regularly conduct a number of studies as part of our prudent management of the Plan, including a Long-Term Funding Study (LTFS), which helps us assess whether the economic and demographic assumptions we use to determine the contribution rates are still appropriate.

Typically we conduct this study every three to five years. However, since our 2014 LTFS started showing changes in our experience, we decided to conduct another LTFS in 2016. The preliminary results of the study confirm what we saw in our 2014 study – that the cost of benefits, has in fact, increased. The main factors driving the increased cost are the current economic environment in which we expect investment returns going forward to be lower on average than over the past 25 years, and the fact that pensioners are living longer, which means that we’re paying out pensions for longer.

When benefits cost more to provide, there are two ways to fund that increase – investment returns or contributions. If investment returns are lower, then to ensure the long-term sustainability of the plan the Plan Sponsor needs to increase contributions to fund the pension promise. Given the economic and investment outlook, we believe returns are likely to be lower going forward; as a result, it’s likely that OPB will be recommending that the Plan Sponsor make a modest contribution rate increase for both members and employers.

In 2016, OPB experienced a record number of retirements. How does this impact the Plan long term?

As expected, the PSPP experienced a record number of retirements in 2016 (85% higher than 2015). A large number of eligible plan members elected to retire in order to take advantage of the existing eligibility rules for retiree insured benefits before changes took effect in 2017. The accelerated retirements will have no material impact on the Plan long term.

One measure of the maturity of the Plan is the ratio of active contributing members to retired members. The PSPP currently has about one active contributing member for every retired member. While this ratio will have shifted slightly as a result of the 2016 retirements, we believe that for two reasons that will only be temporary. First, it is our understanding that the Government of Ontario intends to replace the vast majority of those who retired. Second, we expect that the number of retirements over the next couple of years will be lower than usual given that a lot of our members who were eligible to retire have now retired because of the retiree benefit changes.

Additionally, since we had anticipated that the higher number of retirements in 2016 could impact the Plan, we established a reserve in our last actuarial valuation based on an analysis of the likely impact on the Plan of the higher retirements. We are now in the process, as part of conducting our annual going-concern funding valuation, of determining the exact impact the increased retirements had on the Plan. However, given that we expect the vast number of members who retired to be replaced and lower retirement numbers over the next few years, we don’t believe that this will have a long-term impact on the PSPP.

OPB has been a strong advocate for improving retirement security. What impact do you think the changes to the CPP will have on Canadians generally and on OPB members in particular?

We are strong advocates for retirement security for all Canadians. Over the years we have taken every opportunity to promote financial security for all Canadians. Our message has been focused on two key goals; first, having a retirement system that provides Canadians with meaningful income in retirement, and second, making it available to as many Canadians as possible. We believe the CPP changes go a long way to accomplishing these goals. The CPP is available to all working Canadians and the changes, when fully phased in, will increase the maximum CPP benefit to approximately $17,478 from the current $13,000. We applaud this expansion, which will help more Canadians achieve financial security in retirement.

As the enhanced CPP impacts all working Canadians, regardless of what other pension plan they participate in (such as the PSPP), our members and their employers will be required to contribute more to CPP once the changes start being phased in. We are assessing the impact on our members, and whether or not our current CPP integration formula will need to change to reflect this increase. The CPP enhancements don’t begin to take effect until 2019 and will not be fully implemented until 2025. As such, we want to take this extra time to fully assess the impact of these changes for the PSPP before we make any recommendations to the Plan Sponsor.

Peter Shena
EVP & Chief Pension Officer