Inspired by the University of British Columbia’s variable payment lifetime annuity option, the Australian Retirement Trust is taking a similar approach to decumulation, which, in turn, may hold lessons for Canadian defined contribution plan sponsors, said Brnic Van Wyk, the plan’s head of asset and liability management, during a session at Benefits Canada’s 2024 DC Plan Summit in February.

Launched in March 2021, the VPLA was developed to counter growing longevity risk in the Australian retirement system. Historically, retirees who are enrolled in Australia’s various pension schemes would need to enter a retirement income account to make tax-free withdrawals of their savings, based on minimum age-based drawdown rates. While plan members with a retirement income account could decide how much money to withdraw, he noted the majority chose to only withdraw the minimum amount.

Read: A look at UBC’s variable payment lifetime annuity option

“What we’re finding now is you’ve got a baby boomer sort of demographic bulge coming through. And we’ve got people with material savings, but not something that’s completely adequate for a lifetime income. . . . They still have the option to invest a retirement income account and they still have their social security, but they now also have the option to invest in [a VPLA].”

The value proposition presented to plan members highlights the ability to provide about 50 per cent more than the statutory minimum withdrawals allowed in a retirement income account. “So you get an increase in your pension. It will last the rest of your life [and it] doesn’t matter how long you live.”

To communicate the new decumulation option, the trust first reached out to its 100,000 retired plan members, he said, noting the VPLA option is limited to members between ages 60 and 80.

Read: Back to basics on decumulation

“By approaching out existing retirees, we were hoping to get up to scale quickly and also to try and get people across the age spectrum. Launching a new product and hoping for the drip feed of future retirees was going to be challenging . . . so you always want to try and find a way to convert an existing bunch of people into it. We’ve got about [AUD]$260 million in there now.”

Plan members joining the VPLA option also have a six-month ‘cooling-off’ period, allowing them to “try before you buy,” said Van Wyk. “It’s proving to be quite useful because it takes away that pressure of this now-or-never, once-in-a-lifetime, all-or-nothing kind of financial decision. The very nature of retirement is very [daunting] for people and the more decisions you need to make, the more you get this decision paralysis.”

Read more coverage of the 2024 DC Plan Summit.