Capital accumulation plan member outcomes saw modest increases in the third quarter, due to high annuity rates that shielded members from modest investment market declines, according to a new report by Eckler Ltd.
It found a typical male member retiring at the end of September achieved a gross income replacement ratio of 60.3 per cent and a female member achieved 58.9 per cent.
The report said rising interest rates can benefit plan members purchasing annuities by locking in higher annuity payments. It also noted, while the Canada Pension Plan and old-age security — which are both indexed to inflation — provide plan members with some additional protection, they take different approaches to indexation, which can have a financial impact.
While CPP rate increases are calculated once a year — based on the average increase in inflation over the year divided by the average price level of the prior year — OAS rate increases are calculated four times per year based on the average change in inflation over a three-month period.
“With this current approach, it may take longer for CPP payments to catch up to inflation,” said the report. “Nevertheless, assuming inflation does not continue to increase significantly, both payments should increase to the level of inflation over time.”