August 13 Benefits and Pensions Monitor Daily News Alerts
Joe Hornyak
Former editor of Benefits and Pensions Monitor and founder of Joe Hornyak Communications
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DC Members Shielded
Rising equity markets during the second quarter shielded defined contribution pension plan members from decreased annuity rates and improved member outcomes, says Eckler’s ‘CAPit.’ A typical male DC plan member retiring at age 65 at the end of June, achieved a gross income replacement ratio of 59.2 per cent and a female DC plan member 57.6 per cent replacement. The steep market downturn and recovery in 2020 has painted different retirement pictures for DC members who retired within 16 months of each other. Members who retired at the end of June this year received a seven per cent higher annual income for life than those who retired in March 2020.It also shows that after participating in the investment market rollercoaster ride of 2020, investor expectations have shifted considerably and many are now looking for returns of 10.6 per cent above inflation from their investments in 2021. However, over the past 20 years, a balanced portfolio consisting of 60 per cent in equities and 40 per cent in bonds generated an annualized return of 6.6 per cent. If a typical DC member earned an annual return of 10.6 per cent after inflation on their investments, they would be able to replace around 90 per cent of their income at retirement, it says.
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Funding Relief Expires
The time period during which administrators of certain defined benefits plans in Ontario could elect to use provisions that provided temporary funding relief from solvency funding requirements has expired, says an Aon ‘Radar.’ Requirements for progress reports related to the solvency funding relief are also revoked. The information provided by these progress reports is no longer relevant as a result of the changes in funding rules for DB pension plans in effect as of May?1, 2018. Any existing funding requirements will be maintained, so these amendments would have no effect on required funding for any DB pension plans. This regulation comes into force on September 1.
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