Pensions funds mull greater role in participants' lives

A handful of pension funds are thinking more carefully about the value they add for their participants and the role they play in their lives — beyond writing checks — through so-called social infrastructure.

The emerging trend goes further than buying up assets that are beneficial to the pension fund's local community, such as investing in affordable housing and hospitals — a well-trodden path by many, sources said. Rather, it's about thinking differently about what pension funds can do and the bigger role they can play in and throughout participants' lives, such as negotiating insurance contracts, will services and other non-pension benefit-related services on their behalf.

"We all know the value of having a secure and stable income in retirement from a monetary perspective — it's easy to understand the tangible aspects," said Gareth Gibbins, vice president of pension governance and advisory at Ontario Municipal Employees' Retirement System, Toronto, which had total net assets of C$127.4 billion ($96.1 billion) as of June 30.

"As an organization, we always were curious to hear from members, employers and stakeholders … about the intangible part of that income in retirement," he said, which led the firm on a journey about two years ago to discover what else it could add to enhance its participants' lives.

The findings of two studies in particular have sparked a new focus for OMERS — and potentially for other defined benefit funds.

"The research raises the statement that we should start thinking about pensions as social infrastructure — we know the population is getting older, not younger, so we really need to rethink how we're going to continue to grow or thrive as a society and maintain the social contract," Gibbins said.

There's no one solution, he said. Long-term care, for example, is a huge issue in many countries — including Canada — and "simply putting more money into the system isn't going to solve all of the challenges. While pensions won't solve all of the issues by themselves either, we need to start thinking about them as part of the solution," such as making sure people are aging in the right place for them, Gibbins added.

The pension fund in 2021 partnered with the Canadian Centre for Economic Analysis and worked on a "social values" study of more than 4,000 OMERS participants and over 1,000 Ontario-based individuals.

"That helped us to understand these intangible benefits of having a stable and secure income in retirement. From a high level, there are different ways to measure social value, underpinned by an academic approach," Gibbins said.

OMERS retirees, for example, were 22% more likely to report lower levels of stress than other respondents and were 38% more likely to volunteer their time within their community. From the employer perspective, "we saw (access to a pension fund as) creating closer bonds with the employee, greater retention," he said. Participants are also less likely to draw on public services such as healthcare.

OMERS executives are "using the research and findings to communicate with employers, members and stakeholders when we talk about the benefits of the plan beyond monetary (aspects.) We're looking at ways for it to (help) engage with our younger members. We can use it to open a conversation. It also allows us to engage and contribute in larger conversations beyond our own plan," such as that around decumulation, Gibbins said.

Last year, the fund's executives made a "double-tap" on health-related findings from that report, which led to OMERS sponsoring a study by the National Institute on Ageing, published in May, looking at the broader role that pension funds can play "for both pension recipients and Canadian communities to support aging in the right place.

Viewed from this perspective, it is time to have a broader discussion about the role of pensions as social infrastructure," the study concluded.

OMERS is now on the lookout for like-minded individuals and pension funds to have that social infrastructure conversation with.

One place it will find common ground — and maybe inspiration, too — is in Denmark, where PFA Pension has been working on its "good senior life" strategy for about seven years.

"In Denmark, the life phase after retirement is gaining more importance," said Jesper Brask Fischer, head of welfare at the pension fund, which has more than 600 billion Danish kroner ($88.1 billion) in assets. Life expectancy for a PFA customer turning 65 today is another 24 years on average, he said. "What are you to do with that long part of your life?"

PFA didn't want to be a fund that was only interested in the accrual part of a participants life "and then more or less vanish when people retire — the relevance for a pension company is increasingly when (a member) retires: That is when we deliver you that product, when you start living the life that all your savings (have) aimed at," Fischer said. "There is demand for us not just to talk about and meet the financial needs, but also other needs concerning retirees' general welfare," he said.

As such, Fischer and his team focus on three areas of welfare for participants: health and associated insurance, with the fund having developed a senior health insurance offering; real estate development and housing for retirees; and helping people through the transition to retirement from the labor market through better career planning.

On the real estate side, data shows how people live in retirement is changing — no longer do participants need the traditional type of housing in Denmark that is designed for people with children, for example. "They need a different floor plan, less square feet and fewer obligations and need to be closer to (the) action," Fischer said.

So, PFA developed a senior home investment strategy, investing in different kinds of senior living complexes and nursing homes.

And it comes with a twist: "It's not only a good investment, but as a customer of PFA you get access and priority to that same housing," he said.

For the third part of the project, aiding the transition to retiree from worker, Fischer said: "We have seen major structural changes in our labor market — seniors are working more and longer, staying in the job even though they have got savings. It gives them a network, structure," he said. "People do not want to retire in a binary system from a full five days' work week employment to zero," so PFA has developed a "halfway retirement scheme," for example.

That allows a retiree to tap their retirement plan and draw down a portion of savings, while continuing to work in some capacity.

In the U.K., staff at the Merchant Navy Officers Pension Fund, Surrey, are talking to an ex-CASS Business School — now known as Bayes Business School — executive about how to simplify and draw down cash, said Chair Rory Murphy.

Decumulation is "far too complicated," he said, so instead the Merchant Navy fund is looking at how to help retirees to make their savings go further.

There's the potential to negotiate discounts on goods and services, such as in supermarkets or fixed-price funerals. "We're missing a trick with pensions" to be a trusted provider and negotiate on a retiree's behalf, Murphy said.

The MNOPF, which had £2.1 billion ($2.6 billion) in assets as of March 31, also runs well-being webinars, launched in the COVID-19 era, and touching on topics including health in later life and the power of social connection.

"At the start of the pandemic I was concerned if older people were isolated or not going out," Murphy said. The fund has run three series of the webinars in conjunction with U.K. insurer Pension Insurance Corp., and featuring high-profile names including former shadow Chancellor of the Exchequer Ed Balls. "Feedback has been overwhelmingly positive," Murphy said, with more than 1,300 participants registering across the series and hundreds more catching up with recorded versions online.

One participant said it was "nice to see a pension provider involving themselves with their customers' well-being — rather than just administrators."

Murphy was particularly proud of that comment.

"This last piece of feedback sums it up for me: Why can't other pension funds do more to help and support their members, beyond the core business of providing a pension?" he said.

PFA's Fischer agreed that the fund wants to be more than just a provider of pension benefits.

"We tell customers, when you retire with PFA, it is not just a question of the financial side of retirement, but also how you handle the personal side of life you are in. Scandinavians value (welfare) very highly. People are getting more nervous about the level of welfare they will get from the public sector. Part of our strategy was to focus on where are those deficits, and how can we as a pension provider help people with those difficulties. We want to be part of that public/private interplay and we want to help our customers securing their needs and sense of feeling secure. This is a whole package that we hope will help us with being more attractive and relevant for our customers," he said.

Details on participant uptake were not available, but Fischer said there is "a lot of interest" in the senior housing and career transition offerings, and that the senior health insurance is gaining interest as well.