There are two impediments to moving forward with decumulation. One is structural: plan sponsors are reluctant to take on additional fiduciary responsibility. In 2014, the U.S. allowed annuities as a qualified default investment alternative: when sponsors offer deferred annuities as a default investment option, they have safe harbour protection and can’t be sued. However, Canada doesn’t offer sponsors similar protection. We need to address sponsors’ concerns here. The second is behavioural: in DC, less than 5% of plan members annuitize their savings, in part or in whole.
Tom Reid, senior vice-president, group retirement services, Sun Life Financial, shared the best ideas from the topic discussed at the 2015 DC Plan Summit.
Key takeaways for employers:
- No decumulation solution will be effective if it’s entirely voluntary. There must be some element of nudge.
- Employers need to flip the DC default option—a lump sum—on its head in order to improve decumulation outcomes for plan members. Auto-annuitization offers a possible solution.
View more videos from the 2015 DC Plan Summit.
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