With 10 million Canadian baby boomers entering retirement, dynamic pension pools could help seniors turn their accumulated savings into low-cost lifetime pension income, according to a new report by Ryerson University’s National Institute on Ageing and the Global Risk Institute.
According to the report, dynamic pension pools can help Canadians optimize their expected lifetime retirement income while ensuring they never run out of money by pooling longevity risk. It also noted that in a pool, pension amounts aren’t guaranteed and fluctuate from year to year, allowing retirees to stay invested in capital markets and benefit from the higher expected returns. While these pools are already used as a decumulation solution in other countries, they aren’t broadly available in Canada, said the report.
“Retiring Canadians are more worried than ever that their savings won’t sustain them in retirement — and these fears are legitimate,” said Bonnie-Jeanne MacDonald, director of financial security research at the National Institute on Ageing and the report’s lead author. “Financial markets, inflation and health expenses are just some of the big unknowns that retirees will need to face over 10, 20, 30 or even 40 years.”
In addition to protecting the financial security of individual Canadians, these pools can also protect the public purse by reducing reliance on income-tested federal and provincial senior social programs, said the report, which also called on policy-makers to adopt a universal dynamic pension pool framework available to all Canadians that accepts all types of individual registered retirement savings accounts.
The report noted that currently, the public components of the Canadian retirement income system — the Canada and Quebec Pension Plan, old-age security and guaranteed income supplement — replaces just 40 per cent of average earnings. In addition, it said only 10 per cent of private sector workers are currently in a defined benefit pension plan, while defined contribution pension plan assets represent only 10 per cent of the $1.5 trillion of registered individual savings nationwide, covering fewer than seven per cent of working Canadians.