With the federal government easing the withdrawal requirements for registered retirement income funds in a bid to alleviate the harm to retirees’ portfolios caused by the coronavirus-spurred market crash, the industry is suggesting similar measures for other retirement arrangements.
“Canadians who are about to turn money into income will be faced with the decision of how to diversify those retirement income products to line it up to their lifestyle,” says Jillian Kennedy, leader of defined contribution and financial wellness at Mercer Canada. “But I could see that a lot of them might actually be much more tempted to just take cash. So I think that lowering of that minimum withdrawal will certainly help retirees and it’s a step in the right direction.”
The new measure, which will lower the amount that account holders must withdraw for the year by 25 per cent, was part of the $82-billion economic response plan Prime Minister Justin Trudeau announced last week and would cost $495 million.
Sudden and extreme worries over retirement brought on by the coronavirus market crash may accelerate policy-makers’ interest in variable benefits arrangements, says Kennedy, noting the crisis highlights some of the issues with DC plans.
“Our biggest concern as consultants has always been that when someone leaves a DC plan, they literally become an individual investor. They lose the group pooling effect. They lose the protection they had from their employer in making sure that they get good guidance, good education, good advice, low fees [and] access to investments.
“You go out onto the street and, not only have you got a situation where you’ve never had to really think about it like that before, but you’ve also potentially got a very high amount of money to transfer into retirement income so now you’re a high-net-worth investor and everybody is going to come out of the woodwork to give you the white-glove service.”
These problems are made all the worse in the wake of coronavirus, she says, since a former DC plan member is now trying to navigate a far more complex investing scenario.
“That whole inability to pool and to lose the protection that you would have had in a group environment within an institutional space like a defined benefit participant has, it could actually be detrimental right now . . . That’s where they’re trying to push to allow for regulation to allow this pooling effect for retirees to really support that decumulation.”