Capital accumulation plan sponsors need to focus on providing lifetime retirement income for plan members amid the growth of decumulation solutions such as advanced life deferred annuities and variable payment lifetime annuities, according to a new report by the C.D. Howe Institute.
It noted DC plan members currently have three main options to draw down their accumulated savings, including: investment accounts such as life income funds and registered retirement income funds; variable benefits accounts within DC registered pension plans that allow for gradual income withdrawals; and annuities sold by insurance companies.
The report cited several actions policy-makers can take to improve and simplify access to effective decumulation strategies. These actions include regulatory harmonization of locking in and unlocking rules across jurisdictions to allow a single set of rules to apply to DC assets during retirement, as well as the harmonization of maximum withdrawal rules for LIFs, variable benefit payments and VPLAs, irrespective of the jurisdiction in which the assets are accumulated.
“Many employers already sponsor DC plans for their employees, in which case they already have the infrastructure in place to add features such as variable benefits and VPLAs in an efficient and cost-effective manner,” said Idan Shlesinger, president of retirement and financial solutions and executive vice-president of LifeWorks Inc. and one of the report’s authors, in a press release. “Employers are also well positioned to advocate for innovation from service providers and for legislative changes that enhance the decumulation landscape in Canada.”
The report also called for legislative and regulatory support for pooled decumulation vehicles that permit transfers of retirement assets, along with guidelines for plan sponsors to adopt decumulation frameworks and provide decumulation-specific retirement advice for retiring plan members.
“With so much to be gained, all stakeholders should grasp the opportunity that is before us to enhance our retirement system as well as improve the financial and total well-being of Canadians, during both their working years and in retirement,” said Michelle Loder, a partner in DC solutions at LifeWorks and one of the report’s authors, in the release.