June 9 Benefits and Pensions Monitor Daily News Alerts

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Plan Members Never Panicked

The concern heading into the pandemic was that defined contribution pension plan members would panic and seek out less risky asset classes, says Kate Nazar, vice-president, strategy and market development, group retirement services, at Sun Life. Speaking at the Benefits and Pensions Monitor Meetings & Events ‘Highlights from Designed for Savings 2021: A preview of actionable insights’ webinar with Eric Monteiro, senior vice-president, group retirement services, at Sun Life, she said the evidence was the opposite. Looking at the level of activity involving interfund transfers and contributions for the full year ending March 2021, “we saw 5.4 per cent of plan members making an interfund transfer, meaning they were moving assets between investment options. This volume was actually lower than pre pandemic periods. And not all members de risked when making an interfund transfer. While 30 per cent of members ended up in more conservative investment options, nearly 40 per cent added equity exposure during these 12 months signaling that they actually saw it as a buying opportunity. There were also saw changes in contribution activity although only 13 per cent of members made changes. In fact, five per cent of members actually increased their contribution during the pandemic, whereas only about seven per cent made reductions. Beyond plan design features, members with the biggest long term growth in their accounts were also more engaged in their plans, said Monteiro. There were actually a variety of drivers that contributed to higher account balances. Some of these drivers were usage of investment solutions like target date funds, higher use of web and mobile platforms, and work place savings campaigns that nudged members to take the maximum benefit of their plans and to take action. Member engagement campaigns that encourage ongoing interaction with the plan are a factor in higher contributions as well. However, there's clearly more work to do engaging younger members, both to educate them as well as to engage with them on solutions that may help with the other financial barriers that they're facing. “For example, many of them might be more worried about saving for a down payment on a house or a car. It's also important that sponsors to assess if younger members feel they're just not able to save for retirement and understand the reasons behind it so they can help address these issues.”

Decumulation Necessary Now

At one point, the decumulation of retirement assets was not considered important to solve because more people were covered by defined benefit pension plans, says Frederick Vettese, former chief actuary of Morneau Shepell and author of several books exploring Canada's retirement system. In the Purpose Investments session ‘Longevity Pension Fund: Why is this game changing,’ with Som Seif, founder and CEO of Purpose, he said this has changed because retiring employees are now relying on their defined contribution amounts. With DB plans decumulation wasn't important. With DC plans, it is As well, the number of people who are 65 years of age has grown enormously with over 1,000 people a day reaching 65. And this will continue for some time. Since this is the first time people are retiring with a lot of money in capital accumulation plans, a way needs to be found to convert that into a regular monthly income. “We kind of had a solution before ?annuities,” he said. And 25 years ago, when the real return on risk free investments like real return bonds was four per cent, it was viable. Today, the return is zero per cent which means that the annuities have become a lot more costly than they were. “I was hoping that a better product would come along, something that is longevity based and that people can rely on,” said Vettese. What Seif was trying to solve for is when someone goes from earning an income and a paycheck to being retired and having to receive a retirement income. He wanted a solution that provide the security, knowledge, and confidence no matter how long a retiree lives.” The Purpose longevity pension fund is an income-for-life mutual fund designed for Canadians in retirement. Designed similar to a defined benefit pension, the fund incorporates longevity risk pooling to provide lifetime income to Canadian retirees. It also offers flexibility as investors can redeem and invest more at any time. It is a single ticket solution for both segments of a person’s life ? an income-for-life decumulation feature that provides monthly lifetime distributions when investors are 65 years old and older, while investors younger than 65 can save money pre-retirement. When they turn 65, the transition between saving and receiving a lifetime income happens automatically without triggering a taxable event.

For details on these stories, visit www.bpmmagazine.com

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