In the understatement of the year that “Canadian pension plans shown to have flaws” the Financial Post’s Karen Mazukewich refers to “three new reports flagging the shortfalls and gaping inequities in our pension plans.” The issues reported are: (1) decreasing percentage of employees covered by DB pension plans, (2) 15-20% decline in existing pension plan assets, and (3) segregation of pensioners into “haves” (mostly public sector pension participants) and “have nots” (private sector pensioners, DC plan participants, part time workers). (I am still reviewing the Ontario Expert Commission on Pensions’ final report and plan to do a blog on it shortly- it deserves more detailed study than I had time to devote to it last week, being in recovery mode from my recent extended holiday).
The current issue of BusinessWeek, in an in depth article entitled “Unretired: Retirees are back, Looking for work” looks at the impact of the financial crisis on a number of retired individuals. “They saved. They planned. Then housing tanked and the markets melted. Now they need jobs, and there aren’t any.” The stories are heart-wrenching.
Also on pensions, Paul Vieira in Financial Post’s “Boomers’ retirement dreams fade” suggests that there is reason to hope that Canada’s “Byzantine pension structure” may be in for changes as the Finance Minister indicated that “would work with the provinces on issues related to defined-benefit (DB) and defined-contribution plans “with a view of making permanent changes to the framework” next year.” The need for radical changes in Canada’s pension system is getting more attention with “recent reports from Nova Scotia, Ontario and a joint Alberta- British Columbia effort” and the C.D. Howe Institute. A lawyer specializing in benefits is quoted that “A good crisis should never be wasted”. (If you have been reading my blogs on pensions you are well aware that I believe that we are in a crisis and just about every aspect of Canada’s pension “system” is broken and the recent 200 page Ontario report with its 142 detailed recommendations, pretty much confirms it.)
Still on pensions (as they are getting more and more space in the press) the Barron’s “The math doesn’t add up” discusses how companies’ earnings will be negatively affected due to the increased pension contributions that will be required starting in 2009 due to under-funded plans, while Financial Post’s “Pension fights shift from surplus to deficit” reports on the changing landscape of pension litigation that “Lawyers say the plummeting markets are changing the nature of pension litigation as complaints and lawsuits shift from fighting over surpluses to fighting over deficits.”
Shifting to other topics Jon Chevreau in “What you should know if you get fired?” quotes planner Rechtshaffen on tips if you get fired. Among the tips are: don’t be rushed into signing documents, also negotiate non-money items (financial/legal counselling, health/pension benefits), if there are insurability issues convert group to individual policies, tax planning issues and in some cases the most important decision of pension or commuted value.
Ron Lieber in NYT’s suggests that with low mortgage rates, lower house prices and rising rents (in the U.S.) “It may be time to buy that first house” or at least we may be approaching the point to do this.
After a miserable year in the markets the approaching year-end is an opportunity of “Giving your portfolio a year-end face lift”. WSJ’s Jason Zweig figures that “The market meltdown of 2008 gives you the rare opportunity for a triple whammy: You can transform your losers into winners, remain fully invested and cut your tax bill to boot.” For example sell Exxon Mobil, buy broader energy ETF or SPDR, so you can lock in your tax losses yet maintain your market exposure.
In “Low fee alternatives for ETF devotee” , The Star’s Rudy Luukko reports that Barclays Canada have shifted gears from ETFs which are funds used as building blocks for portfolios to ones which are portfolio funds. Of the four funds just rolled out two are core funds and two are complementary funds. The two core funds are iShares Conservative Core Portfolio Builder (XCR) and the iShares Growth Core Portfolio Builder (XGR). The two complementary funds are iShares Global Completion Portfolio Builder (XGC) and the iShares Alternatives Completion Portfolio Builder (XAL). These funds charging MERs in the 0.6-0.7% range are for those who don’t want to build their portfolios from more basic building blocks.
In Financial Times’ “Be wary of the next big idea- Variable annuities” Pauline Pykala writes that ”The risks of income falling with poor performance rather than rising on good performance”…” Paying 2 per cent a year, even 4 per cent at the extremes, for guarantees could wipe out any benefit from being exposed to risky investments, especially if the upside is capped. The products appear to extend hopes of a higher income than could be achieved without taking any risk, but with little real possibility of achieving that.”… “Smoke and mirrors – like many structured products.”…”However, the problems may lie, as with conventional annuities, with the information asymmetry typical of the financial services arena, and the lack of real competition.” (Those of you read my GMWB blogs GMWB I and GMWB II already know that these are mostly no-win products.)
And finally in WSJ’s McQueen reports in “Insurer casts off long-term care policies”that some insurance companies not only stopped selling LTC policies but are cutting their losses on these policies by dumping them into state supervised non-profit trusts (though policyholders are still protected by state insurance up to specific limits). Insurance companies (often) have the right to increase premiums after number years. On older policies many insurers, have made incorrect assumptions on costs, frequency of terminations and longevity have underpriced these policies in the past. There are 8 million LTC policies in the U.S and in 2007 the average policy buyer was 58 years old and paid an initial average of about $2,000 per year. The article contains an excellent box on what you need to know before you buy long-term-care insurance: premium stability, daily benefits, benefit period, elimination period, inflation protection, expense-incurred benefits and indemnity benefits. (Of course don’t forget to consider the insurance company’s financial stability. I plan to do a blog on LTC insurance in the near future.)