PHASE II: WHY IS IT IMPORTANT? Nicolette Jenez Senior Director Pensions Financial Services Commission

PHASE II: WHY IS IT IMPORTANT? Nicolette Jenez Senior Director Pensions Financial Services Commission

Outline Objectives Background Highlights of Phase II Conclusion

OBJECTIVES To create an effective regulatory pension system. To facilitate social sustainability : ensure adequate level of pension income. To foster the protection and security of participants benefits.

Background Prior to the Pensions Act in 2004, the pension industry received minimal protection under the Income Tax Act. The main concern of the tax authority at the time was the tax exempt status of pension plans. The Financial Services Commission ( FSC ) was given the responsibility for overseeing the pension reform.

Phase 1 The Pensions Act and attendants Regulations were enacted in 2006, giving the FSC the mandate to monitor and supervise the pensions industry. Registration of Trustees and Pension plans Licensing of Administrators, Investment Managers and Corporate Trustees Risk based supervision

Pension Industry Data Membership March 2015 December 2014 September 2014 Active Membership 102,261 94,645 94,683 Funds under Management Asset Values March 2015 ($ 000) December 2014 ($ 000) September 2014 ($ 000) 336,738,474 341,413,284 331,564,608

Where are we? PHASE II Re-draft done in 2013

The Importance of Phase II Adequacy & Preservation of Benefits Strengthening Regulatory Powers Phase II Increased Pension Coverage Clarification of Areas of Ambiguities

The Importance of Phase II Cont d Portability Investments Adequacy & Preservation of Benefits Locking-in of compulsory contributions Preservation of Benefits Vesting

Portability Transfer of accrued benefits and or accumulated contributions to another approved fund or another approved scheme.

Vesting Superannuation Fund A member of an approved superannuation fund will be fully vested in any benefit derived from the employer s contributions no later than: Five years of membership after the Amendment Act in the case of existing members and new members Retirement Scheme A member of an approved retirement scheme shall be immediately 100% vested with respect to any contributions or monies paid into their account from the date of payment by him or on his behalf.

Preservation of Benefits Rights and benefits preserved where: funds and schemes had applied to be registered under the Pensions Act; the benefits and rights created by the prior constitutive documents are preserved up to March 1, 2005 in relation to existing members. The benefit structures and rights of members who joined after March 1, 2005 must be consistent with the requirements of the Pensions Act and Regulations, as amended from time to time.

Locking-in Locking - in Retention of compulsory contributions paid by a member of an approved superannuation fund or retirement scheme.

Investments A fund or scheme may invest in guaranteed leases and private equity up to limits of 10% and 5%, respectively, of the fair value of its assets. All Type 1 pooled funds will be required to be registered with the FSC. The investment managers will be required to submit Audited Financial Statements and any other reporting and disclosure requirements annually for each type I pooled fund.

The Importance of Phase II Cont d Un-Locking of Contributions Maximizing Pension Contribution Increased Pension Coverage Pension Payout Products Enhanced Governance of Retirement Schemes

Enhanced Governance of Retirement Schemes All retirement schemes established after the effective date of the Amendment Act must be fully unitized as a condition of approval for registration. Where an employee joins an approved retirement scheme, the employers are required to remit the contributions deducted from a member s salary to the investment manager within 7 days of the end of the month. All Approved Retirement Schemes should have independent trustees. All sales representatives for approved retirement schemes must be registered by the FSC.

Pension Contributions Membership will be allowed in more than one approved retirement scheme. Members will be allowed to participate in both a superannuation fund and a retirement scheme. The total contributions paid by or on behalf of the member will be capped at 20% of his annual remuneration, or such other limit as prescribed by the Income Tax Act.

Un-Locking There are two exceptions to the provision regarding locked-in contributions:- Terminal illness, as defined in the Pensions Act. Financial hardship, where a member is permitted to withdraw up to 20% of his accrued benefits.

Pension Payout Products Programmed Withdrawal Schedule of payments whereby the pensioner draws down a part of the accumulated capital and investment earnings thereon. Annuity Stream of income paid at some regular intervals for as long as the individual lives.

The Importance of Phase II Cont d Clarification of Areas of Ambiguities Amendments Partial Winding-Up Surplus Ongoing Plans

Amendments to Retirement Schemes Member approval will not be required for proposed amendments to the Master Trust Deed or constitutive documents of an approved retirement scheme. Members of an approved retirement scheme should receive prior notice of 30 days of all proposed amendments, prior to the submission of the amendments to the FSC for approval. Members of an approved retirement scheme will have the option within 60 days from the trustees notice of the FSC s approval, to transfer their accumulated contributions from the scheme without any charges or penalties to another approved retirement scheme or an approved superannuation fund.

Amendments to Superannuation Funds Prescribed amendments should be submitted to the members for their approval within 14 days of the trustees meeting approving the same. Members of an approved superannuation fund should receive prior notice of any other type of amendments (i.e. non-prescribed amendments) at least 30 days prior to the submission of the amendments to the FSC for approval.

Partial Winding-up A partial winding-up shall occur in the following circumstances: Termination of 30% or more members of the superannuation fund (one time or staggered) within a given period of time. The withdrawal of one or more of the sponsors from a multi-employer superannuation fund.

Surplus On going Plans The trustees/sponsor of an approved superannuation fund may distribute surplus while the fund is ongoing provided the following conditions are met: The constitutive documents permit surplus distribution in the manner proposed Prior notice of the proposed surplus distribution is given to the members Prior notice is given to the FSC of proposed surplus distribution Actuarial valuations stating solvency and funding ratios before and after the proposed distribution

Surplus On going Plans CONT D Results from sensitivity and stress testing analyses provided Such other information as specified by the FSC. Approval given by the FSC

The Importance of Phase II Cont d Adequacy & Preservation of Benefits Strengthening Regulatory Powers Phase II Increased Pension Coverage Clarification of Areas of Ambiguities

Strengthening Regulatory Powers Examination and investigative powers over unlicensed and unregistered corporate trustee, administrator and investment manager. Examination and investigative powers over unapproved funds and unapproved schemes which have submitted applications for (i) registration or (ii) approval of winding-up (full or partial). Same regulatory authority over unlicensed investment managers and unlicensed administrators which have submitted applications for licensing as the FSC has over licensed entities.

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