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September 9, 2022

TECHNOLOGY TRANSFORMS LANDSCAPE

Technology has transformed the employment landscape, says Catherine Bierman, product portfolio manager at Medavie Blue Cross. She told its ‘The Value of Versatility’ session that, for example, 20 years ago the impact of the COVID-19 pandemic could have been greater as the average worker had far less ability to work effectively at home for an extended period. This could have created a very different trajectory of how quickly the virus spread and how many people were infected in the year so before vaccines became widely available, so COVID accelerated the pace of technology adoption for work and in healthcare. And now that the genie is out of the bottle, it’s not going back in, she said. The availability of virtual care options for medical care has become increasingly essential to the healthcare system and to modern benefit plans. People know now that it only takes a few clicks of a mouse or few taps on their phone to connect with a doctor, health practitioner, or therapist and it can be at their convenience and from wherever they like. “That’s not something people are going to want to give up whenever the pandemic is, hopefully, soon over.” Employers need to focus on shifts that were taking place before COVID, said Derek Weir, manager, optional benefits, at Medavie Blue Cross. With five generations working side-by-side in the workplace, healthcare needs are varied. For example, spending is dominated by drugs for older workers. For younger workers dollars are going for mental health and massage. Plans are spending as much on massage for young workers as they do on cancer drugs for 60-year-olds. And employees are looking for more choice on how benefits dollars are spent. Since health benefits make up a “significant chunk” of the total rewards package, they are clearly an attraction and retention tool which can make or break deals. Employers should really consider enhancing their value proposition through their benefits plans to set them apart from the competition when they are trying to attract new talent.

September 9, 2022

ORGANIZATIONS OFFERING HIGHER SALARIES

For a second consecutive year, organizations are planning average salary increase budgets of 3.8 per cent (excluding salary freezes) in 2023, a rate higher than historical trends, says Normandin Beaudry. Its ‘12th annual Salary Increase Survey’ says this projection may seem conservative. However, one out of 10 organizations are planning average salary increase budgets above five per cent, in some cases as high as 20 per cent. Darcy Clark, principal, compensation, at Normandin Beaudry, says employers continue to adapt to market pressures. Average salary increases granted in 2022 in Canada reached 3.8 per cent, exceeding the initial projection of 3.4 per cent and 2.8 per cent. Nearly half of Canadian organizations allocated an additional budget of 1.9 per cent on average in 2022, higher than the initial forecast of 1.2 per cent. For 2023, projections reveal that one third of organizations plan to grant an additional budget of 1.4 per cent on average. Organizations that proactively plan for additional budgets will benefit from greater agility throughout the year, such as retaining employees in critical roles, differentiating rewards for high performers, and accelerating the progression of employees in the lower end of their pay range. Only one per cent of the organizations have implemented a salary freeze in 2022 or intend to in 2023, a particularly low number. This can be attributed to the current context, but contrasts with the rates observed in recent years. Uncertainty related to the pandemic had pushed the number of organizations that have implemented a salary freeze in 2021 to eight per cent, when it was typically between three per cent and five per cent before the pandemic. Small organizations, in terms of number of employees, plan on offering higher salary increases than their larger counterparts in 2023. In Canada, organizations with fewer than 50 employees have an average projected budget of 4.5 per cent, followed by companies with 50 to 99 employees (4.1 per cent) and those with 100 to 199 employees (four per cent), excluding salary freezes.

September 9, 2022

HIKE BRINGS RATE ABOUT NEUTRAL RANGE

The fifth consecutive interest rate hike in the post COVID-19 rate hike cycle will bring the policy rate above the neutral range of two to three per cent, says HSBC Bank Canada Asset Management’s ‘Canada Outlook.’ At its September meeting, the Bank of Canada (BoC) raised its policy rate from 2.5 per cent to 3.25 per cent. The 0.75 per cent rate is in-line with market expectations which started to gradually price in a 0.75 per cent hike after the BoC another forceful, but less than one per cent, hike was coming amid elevated inflation. Since the July interest rate decision, headline CPI (consumer price index) inflation eased from 8.1 per cent (the highest since early 1980s) to 7.6 per cent. The easing was helped by the decline in gas prices which fell from over $2.1/litre to below $2 based on the national average. Although headline inflation had eased, inflationary pressures continued to push more service prices higher. These elevated inflationary pressures were partly driven by strong domestic economic activities which showed strong excess demand with household consumption growing above nine per cent in the second quarter. The strong excess demand was also reflected by tight labour markets with over one million job vacancies. The BoC still judges that the policy interest rate will need to rise further given the outlook for inflation.

September 9, 2022

GREENWASHING BAD BUSINESS

Misleading investors on ESG (environmental, social, and governance) isn’t just unethical, it’s bad business practice, says Amber Sharpe, an analyst, IR and marketing solutions, at MJ Hudson. As both investors and the wider world become increasingly concerned with sustainability, it is tempting to exaggerate a fund’s ESG credentials to attract more capital. “This, however, is a terrible idea,” she says. Whether intentional or not, managers committing the marketing sin of greenwashing expose themselves to a host of commercial and regulatory risks – which, themselves, have commercial consequences. Since investing is a relationship business – especially in private markets – and relationships are built on trust, honest and authentic communication is vital. “By over-emphasizing the greenness of a fund, you are undermining the trust on which your relationship is being built,” she says. These unfounded and misleading claims will be uncovered during due diligence and the broken promises will be difficult to recover from. As well, sustainable investing was once associated with forfeiting or compromising on returns. For most investors this is no longer the case and performance and ESG are seen to go hand in hand. “By claiming your fund is greener than it really is, you are misleading investors looking to capture that performance. You are committing the fund to ESG-related performance outcomes which are unlikely to be met,” she says.

September 9, 2022

PORTAL BECOMING MANDATORY

The Financial Services Regulatory Authority (FSRA) will move to mandatory use of the pension services portal starting January 1, 2023, says an Aon ‘Radar.’ This will include defined contribution windup; request to file a statement of investment policies and procedures (SIPP) amendment or restated SIPP; biennial member waivers; letters of credit; and annuity discharges. It also applies to refunds of excess contributions or defined benefit overpayment to employers; DB full windups, and DB and DC surplus refund following full windups. Instructions for using the portal are available from FSRA.

September 9, 2022

PORTFOLIO VOLATILITY TOP RISK

European pension funds say reducing absolute portfolio volatility is their top risk management priority as geopolitical tensions and high inflation continue to impact global investment markets. Research from Alpha Real Capital shows 46 per cent of European pension fund professionals interviewed say increasing portfolio diversification is their top strategic asset allocation priority. Meanwhile, 28 per cent of respondents say their priority is to increase expected returns and 18 per cent will target increasing portfolio income. European pension funds are concerned about high inflation with only seven per cent of respondents saying they are not. This is understandable as over 70 per cent claim to manage their assets to an inflation plus benchmark. Interestingly, 56 per cent of respondents hedge less than 50 per cent of liability inflation risks while 20 per cent do not hedge liability inflation risks at all.

September 9, 2022

PIP OFFERED THIS FALL

The Workplace Safety & Prevention Services (WSPS) regional ‘Partners in Prevention (PIP)’ conference format will be offered in three locations this fall. It is also expanding opportunities with a series of ‘Breakfast Briefings’ on what business owners need to know about WSIB claims, mental stress, and workplace entitlement as well as ‘Days of Learning,’ customized to meet the needs of hosting communities. Recognizing the need for flexibility, the sessions will offer a blend of virtual and live event opportunities. Lynn Brownell, president and CEO of WSPS, says, “We’ve carefully curated content for this year’s Partners in Prevention regional conferences and other learning opportunities to address the most pressing issues and provide the tools to proactively meet the challenges ahead.” Under the theme of ‘Finding Balance,’ the Partners in Prevention format will include legal updates; developments affecting employee responsibilities and obligations including new penalties, risk management tools, and workplace impairment; and mental health strategies with a wide range of options. The regional conferences will take place in Sault Ste. Marie on September 27; October 19 in Kitchener; and November 1 and 2 in Thunder Bay. Information is at https://wsps.news/RegionalConferences. Information on the ‘Breakfast Briefings’ is at https://wsps.eventsair.com/wsps-events-and-conferences/breakfast-briefings while information on ‘Days of Learning’ can be found at https://wsps.news/DaysofLearning

September 9, 2022

MORE INVESTED IN UNIVERSAL

The Canada Pension Plan Investment Board (CPP Investments) alongside Montagu, a private equity firm, have made a further investment in Universal Investment Group The strategic partnership is set to accelerate Universal Investment’s growth trajectory and support its ambition of becoming a leading global fund services player. Universal Investment is a third-party management company and fund administration service provider serving both institutional investors and asset managers, active across Germany, Ireland, and Luxembourg.

September 9, 2022

PETERS JOINS VANGUARD

Steph Peters is head of digital marketing at Vanguard Canada. Most recently, she was assistant vice-president, channel marketing and product management, at AGF Investments.

September 9, 2022

FREEDMAN DISCUSSES SHAREHOLDER ACTIVISM

Amy Freedman, a partner and head of engagement fund investing at Ewing Morris & Co. Investment Partners Ltd. will put shareholder activism in the spotlight at a CFA Society Toronto session. ‘In the Spotlight: Shareholder Activism and Engaged Investing’ will provide knowledge and insight into actionable procedures from both offensive and defensive perspectives and also touch upon private engagement and how this can be greatly affected by shareholder activism. It takes place September 22 in Toronto, ON. Information is at https://web.cvent.com/event/229fdd8d-e069-4006-8f87-d19690d54d0c/summary?_cldee=eZeEJrtE5SXWSrmWnu0kNJ_U6h0Jdxxy2YwbfqIdIPIJERTWZ0ScyC38WPqdG5zY&recipientid=contact-a222de83b615e811a958000d3af44134-22a26b6367f1424fbe86ccc2a5fd74a6&esid=9d43662a-a62e-ed11-9db0-000d3af47030

September 8, 2022

ASSETS AT TOP FUNDS REACH NEW HIGH

Assets under management (AuM) at the world’s top 300 pension funds increased by 8.9 per cent to reach a new record, totaling $23.6 trillion in 2021, says annual research by WTW’s Thinking Ahead Institute. While total AuM has reached record highs, growth slowed from 11.5 per cent in 2020 to 8.9 per cent in 2021. This was to be expected after a very strong performance in asset markets over 2020; however, the latest performance is enough to take five-year cumulative growth to 50.2 per cent in the period between 2016 and 2021. Marisa Hall, co-head of the Thinking Ahead Institute, says, “This is a story of two halves. On the one hand, a new record for the world’s major pension funds illustrates the optimism that defied a global pandemic. Yet on the other, growth is slowing and the long-term dashboard is flashing amber. North America now accounts for 45.6 per cent of assets of the world’s 300 largest pension funds. This is up from 41.7 per cent at the end of 2020. North America’s increased global share was largely powered by the fastest annualized growth in invested assets, up 9.2 per cent, followed by Europe (8.3 per cent), and Asia Pacific (eight per cent). The U.S. now accounts for 39.6 per cent of AuM at the top 300 pension funds and has almost half the funds in the ranking, with 148. After the U.S., the countries with the largest number of pension funds in the ranking are the UK (23), Canada (18), and Australia (15). Defined benefit fund assets continue to dominate at 63.5 per cent of the total AuM. However, the share of DB fund assets has been declining modestly over the years as defined contribution funds (23.8 per cent), reserve funds (11.8 per cent), and hybrid fund assets (0.9 per cent) are slowly gaining traction. The Government Pension Investment Fund of Japan (GPIF) remains the very largest pension fund, leading the table with AuM of over $1.7 trillion. It has ranked first since 2002. The Canada Pension Plan with $427 billion ranked seventh while the Ontario Teachers’ Pension Plan’s $181 trillion put it in 18th place.

September 8, 2022

CANADA NO LONGER NASCENT ON ESG

Canada has long way to go in terms of developing regulation and rules, but the ESG (environmental, social, and governance) movement is “no longer nascent,” says Scott McEvoy, a partner at Borden Ladner Gervais LLP. Providing the Canadian perspective at its ‘The Role of ESG in Effective Pension Oversight ‒ An International Perspective,’ he said one of the challenges in this country is pension plans are regulated at the provincial level with separate federal rules for employees in certain sectors. This means each jurisdiction has its own pension standards legislation. So while the investment of pension fund assets is subject to standards of care in compliance with the terms of documents establishing the plan, there is no requirement for ESG consideration in Canadian pension legislation, other than in Ontario which requires a position statement on ESG in the statement of investment policies and procedures. Legislation sets the fiduciary duty of plan administrators to include following the prudent person rule which requires that investments be made in the best financial interest of plan members. Since ESG consideration of ESG is considered non-financial, there has been little done to change this. However, there is a growing call that ESG considerations like climate change are squarely within the fiduciary duty of pension plans. In fact, the Office of the Superintendent of Financial Institutions (OSFI) in early 2021 agreed it was appropriate for plan administrators to consider climate relation risks and other ESG factors in investment decisions where they are relevant to financial performance. This year, the Canadian Association of Pension Supervisory Authorities (CAPSA) provided guidance that pension plan administrators should consider ESG characteristics that many have material relevance to financial risk return profile of a pension fund’s investments. Eric Bergamin, a partner at Eversheds Sutherland, offered the Netherlands perspective. He said pension funds are governed by many ESG rules. The first notice for pension funds came in 1998 on corporate responsibility. The first mention of best practices in an annual report was made in 2004 and was followed in 2012 with the first legal requirement to consider ESG. While there is no formal obligation to invest according to ESG considerations, ESG risks are part of risk analytics there. Today, this is a best practice for pension investment. A UK perspective was provided by Mark Latimour, also a partner at Eversheds Sutherland. Its ESG journey only started in 2019 so it is not as advanced as the Netherlands. UK pension schemes are subject to various obligations in relation to ESG. For example, they have to disclose their ESG policies in their statements of investment principles. There have been a number of developments this year. For example, under the concept of a ‘just transition,’ pension trustees are encouraged to consider how they will achieve the transition to low carbon economy in the context of underlying social dimensions such as employment. They also need to be aware of the evolving nature of non-financial factors that could become material financial factors, he said.

September 8, 2022

PREDICTABLE ASSUMPTION NEEDED

In times of economic shock such as in the current environment, more frequent adjustment and/or greater predictability of the maximum interest rate assumption would be desirable, says the Association of Canadian Pension Management (ACPM) in its comments on Retraite Québec’s instructions for adjustment and predictability of the maximum interest rate assumption on a going-concern basis. As part of its usual process, Retraite Quebec will review its instructions in early 2023 and will consider the interest rate assumptions used in the December 31, 2021, actuarial valuation reports as well as the most recent forecast of returns for the coming years. While it has no doubt about the thoroughness of this analysis, greater transparency regarding the forecasted returns in future years would be appreciated to facilitate the predictability of the adjustments. An increase in the maximum interest rate assumption that does not accurately reflect the increase in expected returns could significantly worsen the financial position of some plans, given that returns on assets are strongly negative to date in 2022. On the other hand, a reasonable increase in the maximum interest rate assumption would better reflect future return expectations and in large part maintain the financial position of plans. More than ever, this assumption will be critical in determining the required contributions for the year 2023 for those plans required to file an actuarial valuation as at December 31, 2022. Plan sponsors are concerned about this issue as they prepare their budgets for next year as most economic models are already suggesting significant increases in long-term return expectations as of June 30, 2022. It understands that by regulating the selection of the interest rate assumption, Retraite Québec wants to protect the rights of plan members by reducing the risk of underfunding pension plans due to the use of an unduly high interest rate. However, the current maximum interest rate assumption is too low to account for the new economic environment. Therefore, it wants Retraite Québec to quickly review its instructions for actuarial valuations dated in 2022. Such an initiative would provide a good indication of the maximum interest rate assumption that could apply at the end of the year and would alleviate the concerns of plan sponsors who must file an actuarial valuation as at December 31.

September 8, 2022

CANADIANS FINDING ACCESS TO CARE HARDER

Canadians are dealing with considerably more difficulty in accessing care than their American cousins, says a cross-border study of Canadians and Americans from Angus Reid Institute. It finds that over the last six months, 41 per cent – approximately 12.8 million Canadian adults – say they either had a difficult time accessing or were totally unable to access one of five key health services: non-emergency care, emergency care, surgery, diagnostic testing, and specialist appointments. Americans are much less likely to say they encountered barriers to accessing those services, despite near-identical levels of the population seeking this type of care. In terms of confidence about accessing urgent care in a timely fashion if a household emergency arises, 37 per cent of Canadians are confident while 61 per cent are not. In the United States, 70 per cent are confident, while 25 per cent are not. In Canada, young women and young men are most likely to be found in the chronic difficulty group, compared to their older peers. British Columbians and Atlantic Canadians are also overrepresented in this most challenged category of healthcare seekers.

September 8, 2022

BANKS STAY UNITED ON TAMING INFLATION

Global government bonds sold off in August, notably in long-dated maturities, as G7 central banks maintained their aggressive inflation-fighting stances and negated speculation of an imminent pivot, despite the risk of recession, says FTSE Russell’s ‘Fixed Income Insights.’ Most G7 central banks, including the Bank of Canada, stayed united in their resolve to continue raising policy rates to tame inflation, despite the risk of a global recession. However, the slope of the Canadian yield curve signals recession as Canadian, U.S., and UK 10/2s yield curves stayed inverted in August as the short end priced in further rate hikes and the long end anticipated a sharp deterioration in growth.