Low financial literacy and the slow pace of legislative frameworks are among the challenges hindering Canadian DC plans from offering in-plan decumulation options, according to a panel discussion at the event.
Speaking during a panel discussion at Benefits Canada‘s 2021 DC Plan Summit, Michael Dodd (pictured, far left), associate vice-president of pensions, treasury and shareholder services at the Co-operators Group Ltd., outlined how the plan was moving to roll out variable benefits in December. “We feel very strongly that offering decumulation options will be a solid option for our members. We think it will be something that our staff will appreciate and it will help them through what’s sometimes a difficult choice to make when it comes to retirement.”
The Co-operative Superannuation Society pension plan offers two in-plan decumulation options — a fixed monthly pension and variable benefits payments, according to Martin McInnis (pictured, middle), the plan’s executive director. “The variable benefits option is the more popular one among our members. Generally speaking, we tend to see members with smaller accumulated pots tend toward the fixed pension and those with larger pots tend to prefer the variable benefits option.”
And Lisa Weir (pictured, far right), director of retirement and savings strategy at the Royal Bank of Canada, discussed how the bank’s DC plan — the youngest among the three — is considering its options around decumulation since about 15 per cent of plan membership will be eligible for retirement over the next five years.
“We’re continuing to monitor legislative advancements and analyze new product innovations, but our main focus right now is on putting the employee’s perspective at the centre of the decumulation question. So, what is their experience as they approach retirement? What do they understand about the products? And how are they feeling about it all? Because to get to an optimal solution, we believe that we need to understand the employee’s view first.”
Among the challenges facing plan sponsors considering decumulation, Dodd highlighted plan members’ financial literacy. The insurer is ramping up its in-house retirement team to help plan members with decisions related to the pension plan.
Weir agreed, noting the complexity of communication and education around decumulation. “If we believe in offering a product with a guaranteed income component, we know that education at the point of retirement won’t be sufficient; we’ll need to start well before that. So a good strategy will need to engage employees early on, which can be challenging, and then it will have to evolve throughout their career and then, potentially, again, depending on the product, well into retirement.”
While the CSS has been offering in-plan decumulation options for more than 50 years, the legislative piece is its most pressing challenge. The plan is multi-jurisdictional, so the lack of pension legislation harmonization across Canada harms members, said McInnis, noting its membership is spread primarily across six or seven jurisdictions.
“If they’ve accumulated funds in multiple jurisdictions, for example, throughout their careers and they want to consolidate their holdings for retirement income management purposes in the DC plan, they often have to carry two or more variable benefits accounts. And if they then take advantage of unlocking provisions, that just means more accounts and more complexity for them to manage.”
Weir agreed, noting RBC has both federally and provincially regulated employees, with employees also accumulating pensions across multiple jurisdictions. “Under the current landscape and depending on what product we decide to offer, it’s going to be really challenging, if not impossible, to achieve the consistency goal.”
Read more coverage of the 2021 DC Plan Summit.