DC pension industry must shift focus to adequate retirement income

While a lot of attention has been paid to “the front end of pension plans,” there hasn’t been enough focus on how that translates into retirement income, said Blair Richards, chief executive officer of the Halifax Port ILA/HEA, during a session at Benefits Canada’s 2019 DC Plan Summit in Banff, Alta. in February.

“We should really be starting from the back — what is it that people need to retire on? — and then work forward — what level of contributions will that require?” he said. “At least people would understand there’s a relationship between what they put in on the front and what they can expect to get out on the back and — even though it’s impossible to know if you’re 20 or 30 years to retirement — what your lump sum is going to buy you. Because we just don’t know about interest rates, long bond rates [and] a host of other things that are going to impact that.”

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While changes to pension contributions can inevitably lead to a discussion about affordability, it isn’t that simple, said Richards, noting healthy and profitable entities are getting out of the pension business. “It’s a conscious choice. It’s a preference.

“And so we’ve seen this concentration on the front end. How does that become the expense on the back end? A lot of what’s happened is that we now have variability built in, which is a means of taking the pressure off that front end. But it also means people are going to have less, or potentially less. That’s what I’m talking about when I say we’ve been concentrating on front-end changes that have led to all these design changes: in particular, the movement to DC. And there is a price that will be paid for that. We just haven’t seen it yet, or not completely.”

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Richards noted options exist and the Halifax Port ILA/HEA is exploring them, but he also urged other DC plan sponsors to step up. “I don’t think there’s been a whole lot of conversation, that I’ve been privy to, whether the things we’re doing are actually adequate to the challenge. And I wish we would turn the page on that. You would have a tough time convincing me that employees are ready for what we’ve said they have to do here when it comes to pensions.

“And so, the solution has to include some sort of targeted outcome. And the exclamation point is that pension plans should really be about adequate retirement income.”

Read more coverage from the 2019 DC Plan Summit.