2014 CAP Member Survey: Retirement transition and decumulation

This is Part 4 of our annual survey of CAP members.

Plan sponsors may think they have enough worry just getting employees to save for retirement, but, based on results of this year’s CAP Member Survey, it’s likely that many plan members will also need help turning their retirement savings into retirement income.

“We talk a lot about how much money we are going to need but not how we’ll spend it,” says Anita Lieberman, regional vice- president, group retirement savings, with Desjardins Insurance. “But decumulation is a really important topic—and, with so many people set to retire, it’s a big bubble that is going to burst. We have to start marrying the accumulation of wealth with members’ goals and expectations for their lives because retirement is the endgame after all the years of saving.”

Over the years, members’ characterization of their expected retirement hasn’t changed much. The majority (77%) believe that if they are careful, they will be able to live independently, pay their bills (46%) and perhaps even travel a bit or do other things they don’t do now (31%). To finance their anticipated standard of living, members say they’ll need to save an average of $764,484. But they also acknowledge factors that could prevent them from achieving their expected standard of living: personal finance (30%), economic factors (24%), health-related concerns (22%) and job-related issues (11%).

While members agree that their total retirement income will come from several sources, including personal RRSPs (17.3%), personal savings (10.2%) and government pension plans (20.6%), they expect the biggest proportion (27.9%) to come from their employer-sponsored retirement savings plan. Most plan members, however, lack understanding of the payout options for their DC plan or group RRSP when they retire. Only 27% say their understanding is excellent or very good, while 27% say very/somewhat poor, and 7% admit to having no understanding. As well, 38% of members say they don’t know what happens to their savings in a CAP when they retire.

Although 80% of plan sponsors believe that members within five years of anticipated retirement are prepared, 75% express concern about members’ lack of understanding of options at the payout stage. Most sponsors (68%) agree there is a need for a wider range of decumulation products for plan members when they retire, and 61% would like more support from plan providers in assisting with employees’ transition to retirement.

The fact that many members are unsure about how to turn their retirement savings into retirement income is also a concern for Ken Millard, vice-president, national accounts, group retirement services, with Great-West Life. “Members go from accumulating retirement savings with their employer as part of a group plan, only to be faced with decisions at retirement they may be unprepared to make,” he says, adding that many are unaware of the need to reduce investment risk as they near retirement, or the tax implications or impact of inflation on a fixed income following retirement. “Deciding on income options in retirement is no simple task. We strongly recommend that members consult a professional for financial advice before making these decisions.”

Nearly all (87%) of the plan sponsors surveyed believe their organization has a responsibility to assist employees with their transition to retirement, and 92% say it’s important to the organization that their members with access to a specialized advice service can help sponsors overcome liability concerns.”

Only 64% of sponsors agree that the financial security of employees who retire from their organization is a reflection of the company, and Vartkes Rubenyan, a principal with Mercer Investments, can understand why employers say their responsibility has to stop somewhere. “At a point in time, employees should take charge of their retirement planning.”

But, he adds, based on many of the survey results, employees need help to understand retirement planning and payout options at retirement. “If it is truly important for the organization that employees have an adequate retirement income, then they need to take action by providing retirement planning support that starts several years before the retirement date and goes beyond the standard printed and online material. This could include workshops, access to individual financial advice, electronic retirement modelling tools and so on.”

Get a PDF of the full report.