If I’ve learned one thing about the Canadian pension industry over the past six years, it’s that change comes at a snail’s pace.
When I joined Benefits Canada in 2015, my Canadian pension knowledge was a blank slate, so I spent several weeks speaking to pension experts. The key message that came across was this: the main topics on the minds of pension plan sponsors, industry professionals and regulators have been the same for decades.
Decumulation from defined contribution pension plans is one of these topics. As DC plan sponsors shift their focus from the accumulation to the decumulation phase, there are a myriad of factors to consider, like longevity, investment options, fees, legal risks and the actual product used to draw down retirement income. For plan members, that’s traditionally been provided by the retail market, with employees ejected from their comfortable workplace savings environment as they leave their employer and begin their retirement years.
But there’s a better option. In-plan decumulation products, which are provided by a handful of Canada’s largest DC plans and in the works at several others, offer plan members the familiarity and security of the accumulation stage as they transition into retirement.
In this month’s Employer Strategy, Michael Dodd, associate vice-president of pensions, treasury and shareholder services at the Co-operators Group Ltd., shares the organization’s journey to launching variable benefits within its DC plan. He says employees are looking to their employers more than ever to guide them through the entire retirement path. “From the employer point of view, we think [offering in-plan decumulation] does make us a little bit more paternalistic in the eyes of our employees and I think that’s a good thing.”
So why aren’t more DC plan sponsors clamouring to offer in-plan decumulation?
One challenge is the very slow adoption of legislation allowing for the option. For example, rules supporting variable benefits have been gradually introduced in seven Canadian provinces over the past few years. Like all parts of the pension industry, there’s a patchwork of rules across all jurisdictions, posing a significant barrier for employers with pension plan members across the country.
Indeed, during a panel discussion with three plan sponsors at the 2021 DC Plan Summit, held virtually on Oct. 6, the general consensus was the need for a consistent framework across all Canadian jurisdictions.
“From our plan’s perspective, when you’re dealing with members across jurisdictions, . . . it’s really difficult to roll something out when you can only make it available to some of your members and you have to wait along the way . . . ,” said Martin McInnis, executive director of the Cooperative Superannuation Society pension plan. “Trying to figure out how to crack that is really important.”
Lisa Weir, director of retirement and savings strategy at the Royal Bank of Canada, agreed, noting RBC has both provincially and federally regulated employees, with some plan members accumulating their pension savings under multiple jurisdictions. “Under the current landscape . . . it’s going to be really challenging, if not impossible, to achieve the consistency goal.”
While the Co-operators Group decided to implement variable benefits a few years ago, it had to wait a long time for all the various jurisdictions to pass the legislation, noted Dodd during the panel. He also said legal liability was a concern at the beginning. “Quite frankly, we were pleasantly surprised with our legal results. Most of our lawyers came back and said, ‘Look, we’re already taking on the risk of a number of things that variable benefits could add.’ So from a legal point of view, we didn’t really think we were adding as much risk as we thought initially.”
A consistent legislative framework is in the hands of regulators and understanding the legal implications is the responsibility of plan sponsors, but I believe there’s a role for other parts of the pension industry as well. Traditionally, Canada’s insurers have been comfortable with the status quo, taking in retirees and their savings accounts once they’ve left their employers’ plans. But this adds further complexity for those plan members, who spent their working lives under the umbrella of an employer’s accumulation process.
I urge insurers to introduce products that can facilitate in-plan decumulation, so retirees can benefit from a familiar group environment that’s similar to the accumulation process, including lower fees and continued contact with their former employer.
There are still a lot of moving parts here and a lot of complexity. If the historical pace of Canada’s pension industry is any indication, I suspect a few more years will pass before most DC plan sponsors offer in-plan decumulation solutions to their retiring members. But if we keep talking about it, sharing lessons learned and urging all stakeholders in the industry to play their part, decumulation will be just as straightforward as accumulation — and Canadian DC plan members will be better off in retirement.
Jennifer Paterson is the editor of Benefits Canada.