During an event held last week in Toronto, participants discussed how the 70-per-cent replacement rate as a measure of retirement income adequacy could be modified.
Janice Holman, a principal at Eckler, noted that many defined contribution pension members don’t fully understand how their retirement savings work. Citing Benefits Canada’s survey of plan members, Holman said on average, Canadian workers expect their retirement investments to yield an unrealistically high rate of return. She demonstrated how a replacement rate can vary significantly by showing how different the number is depending on a person’s expected longevity.
Read: Tips for implementing a living standards replacement rate
As such, instead of relying on 70 per cent of an employee’s final salary, plan sponsors consider using a living-standards replacement rate, said Bonnie-Jeanne MacDonald, an actuary and researcher at Dalhousie University in Halifax. This takes into account an employee’s overall earnings, a spouse’s income, number of children, home-ownership status, taxes, debt and other savings.
At Benefits Canada‘s 2016 DC Plan Summit earlier this year, MacDonald also questioned the effectiveness of the 70-per-cent replacement rate. Her research found that retirees who hit a 70 per cent replacement rate experienced a wide range of living standards continuity. She also found that there were no particular identifiable subgroups among those for whom the rate worked well.
The question around whether the 70 per cent rate is a good measure of retirement income adequacy is the subject of this week’s poll. Do you think it’s a straightforward way to estimate what someone needs to live on during retirement or is it too simplistic and should include a more individualistic assessment?
Read: Researcher calls for rethink of replacement rates
As for last week’s poll, which asked about the federal government’s report on flexible working, 46 per cent of respondents said employees should have the right to request flexible work options but should have to provide the reasons for their request. Some 38 per cent said employees shouldn’t have to give reasons for asking for flexible arrangements, while 17 per cent said employers still have a lot of work to do to determine when and whether flexible work arrangements are a good idea and how to go about providing them, whether informally or otherwise.
