Replacement income for CAPs hits lowest levels since 2011: report

The fourth quarter of 2018 saw the largest decline since 2011 in a retiring member’s ability to create a secure retirement income, according to a report by Eckler Ltd.

At the end of 2018, replacement income for women fell to 55 per cent and for men to 56 per cent. The fourth-quarter decline is a result of steep dips in equity markets and member outcomes impacted by reduced interest rates, leading to lower annuity rates, noted the report.

Regulators are now looking to decumulation to help mitigate the impact on capital accumulation plan member outcomes, and are looking for ways to allow for and encourage plan sponsor engagement so they have a more successful retirement.

Read: Industry praises budget proposals to allow variable annuities for CAP members

The most recent federal budget proposed new forms of annuities that will provide more flexibility and security to plan members. As well, updates to the Canadian Association of Pension Supervisory Authority guideline No. 8 encouraged plan sponsors to provide retirement income projections, allowing members to make more informed decisions and adjust their retirement planning.

The updated guideline also has a framework for plan sponsor responsibilities when allowing members to draw a retirement income directly from the plan, and provides an opportunity for plan members to benefit from plan sponsor oversight and negotiating power.

Read: CAPSA updates guidelines on DC plan payout, responsibilities and advice