Modernizing the pension system to tackle the issue of retirement insecurity in Canada will involve a greater use of technology, a focus on the deaccumulation phase of life and more emphasis on innovation, according to a panel discussion at the Conference Board of Canada’s Pensions Summit 2016 in Toronto on Wednesday.
Robo-advisors may play a larger role in this area thanks to their lower-cost offering, suggested Michael Katchen, CEO and founder of Toronto-based Wealthsimple Financial Inc.
“Technology is going to play important role not only on the retail side of investing but also on the institutional side when we can run a portfolio at the cost of 15 basis points or less,” he explained. “You can imagine that, in the same way that compound interest grows in someone’s retirement account over time, compounding fees have the opposite and most detrimental effect, so using technology to create scale and efficiencies in someone’s portfolio is absolutely essential.”
The impact of robo-advisors on workplace retirement programs may be felt sooner rather than later as Katchen stated his company would be releasing a group retirement benefit program for the workplace in a matter of weeks. The program is currently in a pilot project with a handful of companies.
“We do plan to launch what we’re calling ‘Wealthsimple for work’,” he said. “Our belief is most of the workplace-provided retail benefits that exist today are mostly dominated by the insurance companies [and] they’re often stacked with high-fee mutual funds. We see a massive opportunity to transform that space.”
Technology can also play an important role in producing a simpler and more cost-effective way of administrating a pension plan, said Alex Mazer, founding partner of Toronto-based Common Wealth Pension Services Inc., which provides pension advisory services to pension plan providers as well as other organizations.
Another way to modernize a pension plan and make a “good” pension plan “great” is to provide more support in the deaccumulation phase of life, according to Mazer.
“A lot of our [defined-contribution] pension plans, RRSPs, etc. basically end at retirement,” he said. “People leave the plan and get put into the retail market, pay higher fees, get lots of advice and are sometimes confused by an array of expensive complex products.”
Other ways to transform the pension system, Mazer suggested, include expanding access to alternative investment products, such as infrastructure and real estate, so that even smaller pension plans can include them in their programs as well as producing regulation that provides for greater innovation as opposed to waiting a few years before a pension plan provider can implement a new idea.
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