Navigating the Retirement Opportunity

Transcription

1 2016 Franklin Templeton Advisor Forum Navigating the Retirement Opportunity Trends and Impacts for Canadians Matthew Williams Head of Defined Contribution & Retirement Franklin Templeton Investments Corp. For Dealer Use Only. Not for Distribution to the Public.

2 Agenda Context The Forces at Play Creating Better Outcomes: Helping People Get Started the Right Way Meeting The Need For Individual Retirement Income Planning Implications for Your Business Seizing The Opportunity Questions 1

3 Context The Forces at Play For Institutional Use Only. Not for distribution to the public

4 People Are Living Longer, Worldwide Average global life expectancy has risen 9.5% from 65.3 in 1990 to 71.5 in 2013* Life Expectancy For illustrative and discussion purposes only. *Research funded by the Bill and Melinda Gates Foundation and conducted by the University of Washington s Institute of Health Metrics and Evaluation. 3

5 Canadians Are Living Even Longer Average life spans have been climbing steadily* Only 5% of the world's 220 countries have longer life expectancy than Canada Canadians, on average, are living three years longer than Americans Life Expectancy For illustrative and discussion purposes only. *Source: World Bank, Bill and Melinda Gates Foundation 4

6 And Since We re Here in B.C British Columbia and Ontario surpass all other provinces and territories in life expectancy. And B.C. is behind only two international peers Switzerland and Japan B.C. also has the highest life expectancy for those who reach 65, and B.C. residents spend a large portion of their lives in full health 5

7 The Result? Retirement Is Lasting Longer Life expectancy of 65 year olds Male Female Life Expectancy Source: Willis Towers Watson 6

8 But Longer Retirements Bring Risk Longevity risk can mean different things to pension funds and individuals but the problem is the same the risk of running out of money For individuals, uncertainty about how long they will live makes planning and budgeting for retirement increasingly difficult For governments, delivering on spending promises made in the past is becoming much harder, leading to challenging discussions on pension reforms and healthcare spending 7

9 Exhibit A: The CPP Was Introduced in 1966 When We Lived Much Shorter Lives Life expectancy at birth, Canada, in years: YEAR MALES FEMALES / / / / / / / /

10 Our Job: Developing and Delivering Retirement Income Strategies for Our Clients Longevity, low interest rates and a lack of planning are among the key retirement issues facing Canadians There is no one-size-fits-all solution This is an important opportunity for your business with significant potential 9

11 Investors Are Saving in a Variety of Ways The Four Savings Pillars Individual Savings Plans Capital Accumulation Plans Government Programs Defined Benefit Plans RRSPs Non Registered Accounts TFSAs LIFs, RRIFs Annuities Defined Contribution (DC) Group Registered Retirement Savings Plans (GRSPs) Pooled Retirement Pension Plans (PRPPs) Deferred Profit Sharing Plans (DPSPs) Canadian Pension Plan (CPP) Old Age Security (OAS) Guaranteed Income Supplement (GIS) Ontario Registered Pension Plan (ORPP) Defined Benefit (DB) Shared Risk Plans (SRPs) 10

12 Digging Deeper: Proprietary Retirement Income Research Our annual Retirement Income Strategies and Expectations (RISE) Survey provides advisors with valuable insight by focusing on three key areas: Identifying Canadian s goals and expectations when it comes to retirement income planning both prior to retirement and after retirement RISE2016 Defining the role emotions play in the retirement income process Understanding the relationship between clients and advisors and uncovering the gaps between them 11

13 RISE 2016 Survey: Expenses and Income Are Key Concerns 82% of Canadians are worried about paying their expenses in retirement RISE % of pre-retirees anticipate spending less in retirement, but only 32% of retirees say their expenses have actually decreased 63% of respondents said they do not have a workplace pension plan 12

14 Creating Better Outcomes: Helping People Get Started the Right Way For Institutional Use Only. Not for distribution to the public

15 Relative Share of DB and DC Pension Assets Select OECD Countries, 2014 World 53% 47% Chile 100% Australia 84% 16% US 58% 42% UK 28% 72% Canada 10% 90% The Netherlands 5% 95% Japan 3% 97% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% DC DB Source: OECD Pensions at a Glance

16 U.S. Defined Contribution Coverage is Growing Private-sector active participants in an employment-based retirement plan, by plan type (among those with a plan) 90% 80% 70% 60% 50% 40% 30% 20% 10% Defined Benefit Defined Contribution 0% For illustrative and discussion purposes only. Source: Franklin Templeton based on U.S. Department of Labor Employee Benefits Security Administration, Private Pension Plan Bulletin Historical Tables and Graphs, December

17 DC Membership Is Rising, DB Is Declining Canada Number of members by plan type, in thousands ( ) 5,000 4,500 4,000 3,500 3,000 2,500 2,000 DB (>9 participants) 4,411 DC 1,762 1,500 1, Defined Benefit Defined Contribution For illustrative and discussion purposes only. Source: Group Retirement Savings and Pensions Report, Investor Economics 16

18 Canadian Retirement Market Assets in billions of dollars 4,500 4,000 $4,279 RRIFs (Including LIFs) 3,500 Group RRSPs 3,000 2,500 $2,148 $2,403 Individual RRSPs 2,000 1,500 1,000 Defined Contribution Defined Benefit CPP & QPP Source : Investor Economics Household Balance Sheet Report, 2013 Edition 17

19 Global Trends in Workplace Savings Auto Enrollment / Negative Election Automatic enrollment on Day 1 of employment Opt out vs opt in Auto Escalation: Used as a tool for retention of longer term employees also improves outcomes Refocusing Employer Dollars on Match Formulas Most common is $1.00 for $1.00 match on first 3% of employee contributions Smart design to lift participation Contribution segment Example 1 Example 2 Example 3 Unmatched employer base 3% 0% 0% Employee contribution range 0%-3% 0%-6% 0%-8% Employer match on above 100% 100% 75% Maximum employer cost 6% 6% 6% Total (employer and employee) 9% 12% 14% Sources: State Street Global Advisers, OECD Pensions at Glance

20 Getting Started the Right Way Automatic enrollment makes a difference NEW ZEALAND 15.2% participation rate (under age 65) in 2007 rose to 64.4% at the end of 2013 UNITED KINGDOM Increase from 47% to 50% in April 2013; first increase since 2006 UNITED STATES As of 2013, 56% of plans have adopted automatic enrolment and 18% are considering the feature For illustrative and discussion purposes only. Source: OECD (2014), OECD Pensions Outlook 2014, OECD Publishing. U.S. Dept. of Labor 19

21 Meeting the Needs of Business Owner & C-Suite Clients Business: Group Retirement Investment Management Tax Planning Succession Planning Insurance Estate Planning Tax Deferred Investment Environment Business: Group Benefits 20

22 Rationale for Workplace Savings Plans Attract and retain the talent required to drive success in a competitive, globalized economy Manage HR costs and productivity challenges associated with employee turnover Build loyalty with a tax-deductible and cost-effective way of helping employees grow their retirement savings 21

23 Build Your Business with Group Retirement Plans Creating a Group Retirement solution for your client allows you to: Enhance your competitive value proposition with your client Reinforce a fence around your client Increase your revenue stream Significantly expand your service and product offering to all clients 22

24 Meeting The Need For Individual Retirement Income Planning For Institutional Use Only. Not for distribution to the public

25 Quantifying the Opportunity The retirement income market is growing* Canadian households in the age 55+ bracket will control an estimated $4.3 trillion in financial assets by 2024 The number of age 65+ households will grow 41% Financial assets controlled by age 65+ households will grow 115% *Source: Investor Economics, Household Balance Sheet Report,

26 For Retirement Income Clients, Focus on both the Logic of Investing and the Emotions of Income Clients won t always remember what you told them, but they will always remember how you made them feel. 25

27 Change the Conversation: Logic of Investing vs. Emotions of Income ACCUMULATION = THE LOGIC OF INVESTING Monthly Statements Asset Allocation Maximizing Returns Time on Your Side Average Rate of Return Alpha, Beta Employer Health Care Plan Greed and Fear DISTRIBUTION = THE EMOTIONS OF INCOME Monthly Cheque Product Allocation Minimizing Risk Outliving Money Withdrawal Rate Standard Deviation Gov t. & Personal Health Care Anxiety and Uncertainty 26

28 Worried about Retirement Expenses Clients emotional responses peak prior to retirement. Percentage concerned about managing retirement income to meet retirement expenses 80% 70% RETIREMENT 60% 50% 40% 30% 20% 10% 0% YEARS UNTIL RETIREMENT YEARS IN RETIREMENT Source: Franklin Templeton, Canadian Retirement Income Strategies and Expectations (RISE) Survey,

29 Retirement Income Requires Managing Client Emotions What are the challenges and solutions? CHALLENGES The logic of accumulation vs. emotions of retirement income Emotions peak during the financial transition to retirement... Clients may not always remember their retirement income plan SOLUTIONS Talk about what matters to your clients Don t wait until retirement is close to talk about retirement income Create a retirement income plan and review it regularly 28

30 Help Client s Prepare a Retirement Budget Source: Morningstar 29

31 The New Frontier: Retirement Income Spend-down options Lump Sum Payments Programmed Withdrawals Annuities Individuals choose one or a combination of options, according to their unique situation and income needs. 30

32 Implications for Your Business Key takeaways Canadians must be financially prepared for longer retirements The shift from DB to DC pension coverage in the private sector is a key factor and retirement income is quickly becoming a larger issue as baby boomer retire in growing numbers These trends are a major opportunities for your business 31

33 Seize the Opportunity Next steps Review your book for untapped workplace retirement savings opportunities: Business owners, CEOs, CFOs, HR executives Start developing your strategy for retirement income conversations: Identify clients 10 years+ out from retirement to address rising retirement income concerns now Talk to Franklin Templeton about how we can help you capitalize on these opportunities 32

34 Questions? For Institutional Use Only. Not for distribution to the public

35 Biography MATTHEW WILLIAMS Senior Vice President Head of Defined Contribution & Retirement Franklin Templeton Investments Corp. Toronto, Ontario, Canada Matthew Williams is the Head of Defined Contribution & Retirement for Franklin Templeton Investments in Canada. Joining FTI in April 2013, he leads the strategy and sales effort for the Defined Contribution & Retirement businesses. Matthew has over 25 years of experience in the commercial activities of wealth management and investment management in Australia, across Asia and Canada. His previous role was Head of Marketing, Asia Pacific, with ING Investment Management. While in Asia, Matthew advised sovereign and quasi sovereign institutions on the development of their pension models and wrote a regular investment column for the Hong Kong Economic Journal. Matthew also lectured at the Securities Institute of Australia and contributed to various industry committees in Australia and Hong Kong. He is also a member of the Defined Contribution Institutional Investment Association (DCIIA) global committee. Matthew s industry experience is coupled with a Master of Commerce (majoring in financial planning) from the University of Western Sydney and an M.B.A. from Southern Cross University, Australia. He has also completed the Hong Kong Securities Course for Responsible Officers and the Canadian Securities Course. 34

36 Disclaimer The information presented herein is considered reliable at the present time, however, we do not represent that it is accurate or complete, or that it should be relied upon as such. Speculation or stated beliefs about future events, such as market and economic conditions, company or security performance, upcoming product offerings or other projections represent the beliefs of the speaker/author and do not necessarily represent the views of Franklin Templeton Investments Corp. General business, market, economic and political conditions could cause actual results to differ materially from what the speaker presently anticipates or projects. The information presented is not a recommendation or solicitation to buy or sell any securities. Franklin Templeton Institutional is part of Franklin Templeton Investments Corporation 35