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Governanceasatoolforimprovingpensionperformance

A multi-stakeholderperspective

AlexMazerFounding PartnerCommonWealth

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Importanceofgovernancefroma“systems”perspective

alsoabout

performance

Notjustabout

compliance

Thebestretirementsecurityforeverydollarofcontribution

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Goodgovernancehelpsdistinguishpensionsfromfinancialproducts

Financialproducts Pensions

• Profit-driven• Investors’interestsnotnecessarilyfirst

• Individualized• Governanceoftenineffectiveand/orconflicted(e.g.,mutualfundcomplexes)

• Members’interestsmustbefirst(fiduciaryduty)

• Collective• Truststructure• Statutorymemberprotectionsthroughpensionsstandardslegislation

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PeterDrucker’sfiveprinciplesforhigh-performancepensionorganizations

Missionclarityandorganizationalautonomy

Goodgovernance

Sensibleinvestmentbeliefs

Rightscale

Rightpeople

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CommonWealth’stenprinciplesofgoodpensiondesign

1. Asingularfocusondelivering cost-effectiveretirementsecurityformembers

2. Lifetimeapproach,withaccumulationintegratedseamlesslywithdecumulation

3. Members’interestsfirst(strongfiduciaryduty)

4. Low-cost

5. Simplicity throughlimited investmentchoice

6. Passiveinvestmentmanagementisalmostalwaysbetterthanactivemanagement,exceptforthemostsophisticatedinstitutions

7. Investmentphilosophyandassetallocation informedbybestinternationalexamplesandthinking

8. Transparencyandbenchmarking

9. Governancesimilar tobestpublicpensionplans

10. Plandesignoptimizesothergovernmentbenefitsandtaxefficiency formembers

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Governmentandregulatorperspectiveonpensiongovernance• Goodgovernanceasanefficientmodeofregulation

• Anincreasingfocusofpolicymakersandregulators

• Wayspolicymakersandregulatorscanencouragegoodgovernance:o Encouragingplandesignsandstructuresthatinvolvemember

participationandshareddecisionmaking(e.g.,JSPPs)o Encouragingscale,whichcanattractbettertrusteeso Greatertransparency,benchmarkingo “Fiduciaryduty”– evolvingmeaning;expandingscopeofapplicationo Requiring/encouragingtrainingandeducationfortrusteeso Leadingbyexample:bettergovernanceinplansthatgovernments

sponsor

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Unionsidealsponsorsbutdon’talwayssucceed

Intheory,idealsponsorsforpensionplans

Inpractice,recordofunionsponsorshipranges

ScaleMandate

Longevity

vs

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Acriticalopportunityforthelabour movement

Challengesforlabour

§ Decliningmembership

§ Legal/politicalthreats

§ Limitsofbargainingasatool

Theretirementsecurityopportunity

Providepensionvehiclestothosewholackaccess

Increasemembershipandrelevance,whilecontributingsocial/economicvalue

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Thelackofgoodgovernancecanundermineretirementsecurityformembers

$

PotentialnesteggActualnestegg/

potentialretirementincome

Actualretirementincome

Accumulation phase Decumulation phase

$

§ Highfees(30%+ofsavings)§ Poorchoices(timing, fund

selection, assetallocation)§ Failuretosave§ “BayStreetfirst”approach

§ Highfees(-3yearsofretirementincome)

§ Littleannuitization /longevity riskmanagement

§ Potentialexploitation ofvulnerableconsumers

Capitalaccumulationplanexample

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Concretewaystrusteescanaddvalueformembers/sponsors

• Lowerfees

• Expandmembership

• Transparencyandbenchmarking

• Collaborationwithotherplans

• Regularcommunicationandinformationsharingwithsponsor

• Clear,digitallyaccessibleinformation/communication

• Seekmemberinputwhereitwillbemeaningful

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OpportunitiesforAtlanticCanada

• Encouragescale:o Assetpoolingo Expandingofexistingplans/fundso Mergers/consolidation

• Movetowardsarm’s-lengthgovernanceandin-housemanagement forpublicsectorplans(someofwhichisalreadyunderway)

• Newunion- andassociation-sponsoredCAPplanswithgoodgovernance– flexiblemodelstomeetneedsofcontract/self-employed/seasonalworkforce

• Regulatory/policycollaborationamongstAtlanticCanadianprovincesandwiththerestofCanada(e.g.,onCPP/ORPP)

Buildingonworkandreformalreadyunderway

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PooledassetmanagementintherestofCanadaModelforachievingscaleeconomiesandin-housemanagement

InvestmentManagementCorporation ofOntario

$226B$84B$124B $112B ~$50B

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Recapofkeypoints• Morethancompliance;performance

• Governancehelpsdistinguishpensionsfromfinancialproducts

• Goodgovernanceisincreasinglyimportanttogovernments/regulators

• Criticalopportunityforlabour assponsor/overseer

• Trusteescanplayaleadershiproleinimprovingperformanceandaddingvalueformembers

• OpportunitytoimproveoutcomesinAtlanticCanadathrough:o Scaleo Arm’s-lengthgovernance/in-housemanagemento Newunion- andassociation-sponsoredCAPplanswithgoodgovernanceo Regulatory/policycollaborationandreform

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CommonWealthisaspecializedadvisory firmdedicatedtostrengtheningretirementsecurityandexpandingaccesstogoodpensions.Weservepension plans,unions, governments,andassociations indevelopingintegrated,innovativesolutions totheinvestment,management,regulatory,andstakeholderchallengesassociatedwithpension security.

AboutusDesign,build, andsupport innovativenewpension vehicles andproducts

Whatwedo

Pension strategy,regulatoryaffairs,andcapacitybuilding

Pensionplangrowth,consolidation, andassetpooling

Contact

AlexMazerFoundingPartner

amazer@common-wealth.ca

www.common-wealth.ca

@CWpensions

AboutCommonWealth