State Pension System and Its Impact on Company Benefit Practices - Manulife Company in Canada - Case Study Example

State Pension system and its impact on company benefit practices Name Institution Course Tutor Date State Pension system and its impact on company benefit practices Manulife financial company in Canada Manulife financial is based in Canada and is a global leading financial services organization, operating in Canada, United States and Asia. Canadians have been seeking financial advice from the company for more than 125 years now. The first Asian policy was at Shanghai in 1897 and has remained a leading financial provide with more than 50,000 employees. In United States operating as a John Hancock in 2012 celebrated its 150th anniversary with not less than 6,300 employees (Manulife Financial 2010). Manulife has more than 75,000 employees, distribution allies and agents. Most clients are attracted to Manulife because of its vision and values such as honest, consistency and strong promising solutions on financial decisions. Their professional employees, distribution allies and agents provide services on wealth management products and financial protection to costumers such as health insurance, life insurance, annuities, pension products, mutual funds, long-term care services and banking products. For institutional customers worldwide the company offers asset management services, casualty retrocession, reinsurance solution and specializing in property (Manulife Financial 2013). Vision Manulife vision is to be a world leading organization by providing professional financial services to customers. This is done through offering reliable, strong, dependable and progressive solutions on most important decisions pertaining financials (Manulife Financial 2013). Values The company values are the guidelines on day-to-day activities for instance, manner of handling customers, stakeholders and decision making in the company. The values are; professionalism, integrity, real value to its customers, employer of choice and demonstrated financial strength (Lu 2013). Professionalism The company seeks the most qualified, skilled and specialists for various occupation for the advantage of its customers. Their employees and agents are to be professionals in order to provide better services to the customers and other stakeholder. This is to help the company achieve its vision of becoming a world leading financial organization (Chen 2013). Integrity The entire company’s affairs are contacted in fair and open manner in order to create trust to the costumers. A Company’s worth and honesty builds customer’s confidence who seeks its financial assistance (Lu et al 2013). Customers as true value The core value of the company is to satisfy its customers over the world suggests Chen, 2013. To achieve this it offers standard products and services such as sustainable values, advice and excellent solutions to their customers to meet their demands and needs. The customers are the very essence in the company who should be prioritized before anything else. Choice of employer Lu, 2013 states that, the future of Manulife rests on employee performance. Therefore, the company will retain and attract the best professionals for future progress. This is done through supporting human resource development and superior performance reward. The company also provides post-employment benefits like pension and retiree welfare to eligible employees as an encouragement. Demonstrated financial strength Manulife determines the future of its costumer’s faith by fulfilling its financial promises made to them. It earns good refutation through retaining highest investment presentation outcome, a well income flow, uncompromised claims paying capability and consistent investment management values (Li 2013). Manulife Strategies To be accessible to its customers Manulife Company will expand its distribution channels and services to reach all its customers across the globe. This is fulfilled by extending its approach to direct sales channels and long term approaches to its customers who may prefer direct transaction with the company (Li 2013). To become a world leading company According to Lu et al 2013, Manulife intends to be an international leading company by the establishment of proper and specific strategies suitable to each region’s situation. This will create an excellent opportunity for growth, competitive environments, markets and good image of the company. Manulife also will target professionalism of its employees who are highly skilled and performers. Professionalism will be achieved by creation of expertise centers over the world to develop, share capacity and concentrate on best activities for the company. To be competitive both locally and internationally Manulife meaningful competitive advantage will be on effectiveness, efficiency and commitment in service delivery to its customers as noted by Eisenbach, et al (2013). In addition, to provide relevant services to customer’s modification and operational review will be introduced to identify beneficial activities from global scale to costumers. Risks/Capital management Manulife manages risks within its limit frame-work. The framework lays down standards and policies on risk identification, governance, measures, control, monitoring and mitigation. On capital, the company will have capital management above its targets for successful execution of its operations. This will create a strong foundation for future progress (Chen et al 2013). Lastly, Manulife financial company to deliver on its strategies has to be commitment in plan execution. This involves efficiency, effectiveness, leverage of global capacities and the mode of operations. Furthermore, Manulife continuous success is due to its strong strategic initiation in investment performance delivery worldwide. The Defined Benefit Fund The defined benefit fund is defined scheme is one defined as one that has arrangements, whereby the scheme rules determine it. The rules are defined in beforehand and the benefits often relate to the last salary along with the years of service an employee has worked for a given company. This scheme has a major risk of that faces the beneficiaries; and the risk is comprised of the employer’s solvency of being in a position where the promised benefits are met. Defined Benefit Schemes oblige the employer to pay for the employee in order to ensure that enough funds are made available in future time (Retirement Advisor 2013). The employer’s contribution can vary depending on their investments’ value, and at the same time, the risk lies on the side of the employer. The members Defined Benefit pension plans are classified in a joint investment plan that is controlled by an administrator. The formula for receiving the income by the retiree depends on the years of service and the amount of income. It is expressed in the terms of average of the earnings of the last five years. The contribution rules for the DB are specific to it, and may sometimes cash that matches the contributions. Tax considerations for the plan depend on a number of factors whereby the employee contributions are tax deductible (Organization for Economic Cooperation and development 2006). Methodology for the DB plan earnings The DB plan earnings have their methodology of determination. The employee ought to receive the monthly income that has been specified. Most of these plans allow for the perpetuation of the payment down to the spouses or even partners in common law. Others may have adjustments made on inflation. The considerations of taxation that are made on this payment include the pensioner paying their taxation on the annuity annuity benefit that is received, or the withdrawals of the registered plan that were made (Retirement Advisor 2013). If for example an employee who makes $50, 000 per year had joined a DB plan at the age 35 retiring at 65, the terms can be as follows: Contribution of 7.5% of the yearly salary At retirement, he/she will receive 1.5% times the number of service years times the best-five-average salary. The calculations of the contributions along with the benefits will be as follows: $50,000 x 7.5= $3750 annual contribution 1.5% x30 service years x $50,000 (average salary) which will equal to $22,500 every year as long as the retirement lasts. The assumption in this calculation is that the salary will grow at an inflated rate (Retirment Advisor 2013). If an employee leaves a company before retirement, they have three options at their disposal. In the first place, they can choose to leave those funds entitled to them in the plan and collect the benefits as stated in the formulary at their retirement time. Secondly, they can transfer the funds to new pension plans, as long as that is allowed, and thirdly, the amount can be transferred to a locked-in RRSP that is regular that resembles the regular RRSP. In this case, the amount can wait up to the time of retirement when they are allowed to withdraw the money. These options are available at Manulife and they allow the employees to have all their full contributions to the pension abreast (Manulife Financial 2013). Analysis and argument The DB plan is an important one because it allows for a transfer to another place especially in Manulife if an employee changes company (Manulife Financial 2013). This transfer guarantees the safety of a person’s benefits and allows for clear and refined terms of service even though the fund is fully operational after 35years of service. At the same time, the amount can be transferred to spouses if one of them dies thus letting benefits go to appropriate persons. However, DB plan cannot be guaranteed at some situations. If a company changes its pension terms or types, such as, Defined Benefit to Defined Contribution, the benefits attached to any of these plans will remain until retirement. No changes whatsoever can be made to the DB to DC and this becomes a challenge, as the frozen benefits cannot be transferred from one plan to another. In cases of bankruptcy, the company can affect the recipients of the pension concerning the plan status at the time of bankruptcy. If there is full funding of the plan at the bankruptcy time, there is a possibility of a continued pay to pensioners (Retirement Advisor, 2013). However, if there is underfunding of the plan, employees can receive an amount lesser than the promised (unless the fund is insured by the government). This, actually, puts the fate of employees in a hanging position not able to redeem themselves in such situations. Proportion of members of superannuation funds in accumulation fund Accumulation fund is a superannuation fund that is regulated and is different from DB (Retirement Advisor, 2011). Matterson (2011) explains that superannuation is the money that is saved on behalf of an employee by the employer. The amount caters for the needs of that employee after retirement. Superannuation is directly linked to a person’s employment. Accumulation fund on the other hand is a formal agreement where a given amount of money is contributed by an investor to a certain fund and in periodic terms. It is aimed at accumulating one’s investment to a larger fund by that raises the value of portfolio of the fund. The Canada Pension Plan is organized in a way that allows for pensions as well as benefits when one who contributes retires, becomes disabled or dies. A number of funds for this plan exist; and they include the retirement pension, post-retirement benefit, disability benefits, survivors benefits, pension sharing, and credit splitting, Anybody who is working has the possibility of having any or several of these benefits added at the CPP (Service Canada 2013). Conclusion The value of retirement plan in Canada is quite vital for the wellbeing of the people. At the same time, companies help in perpetuating the national requirements by ensuring that the workers get their entitlements especially at retirement. This is the case for Manulife Company that has put in place strategies that ensure that while performance is ensured, the performers (employees) are protected and ensured of retirement benefits. As a result, the company has ensured that it upholds the Canada Pension Plan for its workers leading to effective performance in its operations. This is probably the reason many Canadians have sought financial advices from it. References Chen H, Choi, S & Hong, Y 2013, How smooth is price discovery? Evidence from cross-listed stock trading, Journal of International Money and Finance, 32, 668-699. Eisenbach S, Schiereck D, Trillig J & Flotow P 2013, Sustainable Project Finance, the Adoption of the Equator Principles and Shareholder Value Effects, Business Strategy and the Environment. Gravelle T Grieder T & Lavoie S 2013, Monitoring and Assessing Risks in Canada’s Shadow Banking Sector, Financial System Review, 55. 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