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CLHIA's comments on FCAC's recent consultation paper "Toward a National Strategy For Financial Literacy - Phase 1: Strengthening Seniors' Financial Literacy"

Release Date: 07/14/2014
Staff Reference: Leslie Byrnes

July 14, 2014

Ms. Jane Rooney
Financial Literacy Leader
Financial Consumer Agency of Canada
427 Laurier Avenue West, 6th Floor
Ottawa, ON K1R 1B9
Submitted by e-mail to:

Dear Ms. Rooney,

The Canadian Life and Health Insurance Association Inc. (CLHIA) is pleased to provide comments in response to the Financial Consumer Agency of Canada's (FCAC) recently issued consultation paper, "Toward a National Strategy For Financial Literacy - Phase 1: Strengthening Seniors' Financial Literacy".

Established in 1894, CLHIA is a voluntary trade association that represents the collective interests of its member life and health insurers. Our members account for 99 per cent of the life and health insurance in force in Canada, and administer about two-thirds of Canada's pension plans. Life and health insurance companies contribute to the financial well-being of more than 27 million Canadians by providing a wide range of financial security products such as life insurance, annuities and supplementary health insurance. Policyholders and their beneficiaries receive $76.2 billion a year in benefits, or almost $1.5 billion a week, with over 90 per cent of benefits going to living policyholders.

The life and health insurance industry commends FCAC for this timely consultation. We agree with the financial literacy goals identified in the paper, namely:

  • engage more Canadians in preparing financially for their senior years,
  • empower seniors to plan and manage their financial affairs,
  • improve awareness and understanding of public benefits for seniors, and
  • increase tools to combat financial abuse of seniors.

While all of the goals are important, our comments primarily address the first goal. We believe that creating the right conditions for seniors, indeed all Canadians, to take ownership of their financial preparedness is key to the success of the financial literacy strategy. Several important elements contribute to engagement. These are:

A. Having access to savings plans, especially in the workplace
B. Having access to clear information about savings vehicles
C. Having access to advice
D. Knowing the sources of income (workplace pensions, personal savings, government benefits) and planning for expenses in retirement
E. Overcoming inertia and taking action

Below are a few observations under each of these headings.

A. Having access to savings plans, especially in the workplace
A number of vehicles exist to build savings for retirement, such as workplace pension plans, tax-incented programs like registered retirement savings plans (RRSPs) and tax-free savings accounts (TFSAs), and personal savings. But, the reality is that some Canadians do not take full advantage of these vehicles. Despite heavy promotion, competing demands and inertia often prevent people from saving for retirement. Even more troubling, although it has been demonstrated that the workplace is the easiest place to save, over half of Canadians do not have access to a workplace retirement plan.

Public policy objectives regarding financial literacy and retirement income security have become well aligned and inter-related around retirement savings. In its report, the National Task Force on Financial Literacy recommended that "employers offer automatic saving programs and tools to facilitate increased lifelong saving by Canadians". The federal government and several provinces are making an important contribution in this area through the introduction of pooled registered pension plans (PRPPs).

PRPPs provide a low-cost, simple alternative for employers to offer a workplace retirement plan. We do not believe it unreasonable for employers to be obligated to provide their employees with an opportunity to save at the workplace. Therefore, we encourage other jurisdictions to adopt the Quebec model, where it will be mandatory for employers with five or more employees to offer some form of retirement plan.

B. Having access to clear information about savings vehicles
It's hard to imagine Canadians becoming more engaged in preparing for their senior years if they can't understand the options available to them. Responsibility in this area extends to all players - financial services providers, government, employers and Canadians themselves.

The life and health insurance industry is committed to clear communication initiatives to improve information about the products that are so important to the financial security of seniors, such as annuities, registered retirement income funds (RRIFs), pensions, long-term care insurance and life insurance. Priorities in this area include using clear language and providing new ways for consumers to access information. For example:
  • contracts are being written in clearer language,
  • complex financial concepts are being explained through the use of simple and compelling "whiteboard" videos, and
  • forms are being customized to clients' needs, eliminating unnecessary fields and questions.

At the national level, the FCAC has recently embarked on an excellent initiative to improve access to financial literacy information through its on-line resource database. We commend this initiative and look forward to participating in it.

C. Having access to advice
In addition to clear information, having access to financial advice will help to improve financial literacy and preparedness for future seniors. Building financial assets is a key component of preparing for retirement and research shows that the presence of advice, particularly over the long term, has a positive and significant impact on household financial assets.i The National Task Force on Financial Literacy recognized this and recommended that the government and stakeholders help Canadians to "become better informed about the role and benefits of professional financial advice".

In the life and health insurance industry, we have over 80,000 licensed advisors who work with Canadians, often over the kitchen table, to help them understand their financial needs throughout their lives. For example, advisors help Canadians to understand and prepare for:
  • risks (life and health insurance, long-term care insurance),
  • retirement savings (RRSPs, TFSAs), and
  • the transition into retirement and financial management in their senior years (annuities, RRIFs).

Advisors establish long-term relationships with their clients and are often called upon during "teachable moments" in a clients' life. As a condition of licensing, advisors maintain and enhance their skills and knowledge through continuing education courses. Programs like Seniors' Advisors Certification help advisors understand the multiple aging processes and particular needs of seniors.

D. Knowing the sources of income and planning for expenses in retirement
Not only do Canadians need to have access to retirement savings products and advice, they also need to understand how those products will integrate to provide a retirement income that meets their needs. As noted above, advisors can be of great assistance to Canadians with developing their financial plans for retirement.

The employers and insurers providing workplace life and health insurance benefits and workplace retirement benefits also play a valuable role, particularly in helping Canadians understand their sources of income in retirement. Benefit information is routinely provided in the form of employee booklets, employee seminars and access to individualized advice. As well, individualized information is available to plan members on-line.

As noted in the consultation paper, Canadians in their senior years may face a number of life events that significantly impact their finances. For example, many seniors plan for increased expenses related to lifestyle choices, like travelling or hobbies. Others may expect to have expenses related to changing housing needs. Of vital importance, but not as well understood, is the need to plan for healthcare and related expenses throughout the stages of retirement.

These expenses range from costs for vision care, dental care and prescription drugs to costs for home care, nursing home care, or other long-term care. Depending on the care required, expenses can add up quickly, and may cost seniors thousands of dollars a year. These expenses are not generally covered under the Canada Health Act, which means seniors must pay for them "out of pocket" or through some form of insurance coverage. Therefore, educating Canadians to anticipate and plan for these realities is of extreme importance.

E. Overcoming inertia and taking action
It is important that Canadians understand where their retirement income will come from and to take action to plan for the full range of potential expenses throughout their senior years. Yet, even with the best of intentions and armed with good, understandable information, people don't always take action. That is one reason why saving through the workplace proves to be so successful. Automatic payroll deductions are simple and, without conscious effort, help to build retirement savings. The automatic enrollment feature in PPRPs is a practical example of using behaviour economics to overcome inertia.

In terms of the national strategy, we support FCAC's plans for a public awareness campaign to reinforce the importance of being financially prepared for retirement and to urge Canadians to take action. One campaign model may be the highly successful "Participaction" program from some years ago, retitled "Participaction for Retirement Savings", or "CanSave".

Finally, with respect to measuring the progress of Canadians' financial literacy, we support FCAC's plan to repeat the Canadian Financial Capability Survey. We also suggest FCAC consider tracking use of its database and reaction to the public awareness campaign, which could serve as measures of Canadians' involvement in financial literacy efforts.

We appreciate the opportunity to respond to the consultation and share FCAC's commitment to improving the financial literacy of all Canadians, including seniors.


(Original signed by)

Frank Swedlove

i The Value of Advice Report 2012, The Investment Funds Institute of Canada. Page 6.