November 4 Benefits and Pensions Monitor Daily News Alerts

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Retirement Income Recovers

The resurgence of COVID-19 cases and new lockdown measures that will continue to weigh on economies mean uncertainty is likely to remain the theme for the rest of the year, says Eckler’s ‘CAPit.’ The resilience of the equity markets following the sharp market contraction in the spring has helped push the recovery of retirement incomes toward pre-pandemic levels. A typical male DC plan member retiring at age 65 at the end of September saw their gross income replacement ratio returned to 56 per cent from the all-time low of 53.1 per cent in March. For a female DC plan member, the ratio increased to 54.5 per cent from the all-time low of 51.6 per cent at the end of March. The gross income replacement ratio for a typical CAP member has been trending downward since tracking began in 2006. More importantly, however, this trend has also impacted the ability of CAP members to maintain their standard of living in retirement. Through her research, Dr. Bonnie-Jeanne MacDonald, director of research for financial security at the National Institute on Ageing (NIA) at Ryerson University, revealed that the income replacement ratio needed for Canadians to maintain their living standard in retirement ranges considerably from 10 per cent to 200 per cent of gross pre-retirement income. However, her work also proved that the universal rule of thumb that replacing 70 per cent of pre-retirement income will lead to a comfortable retirement was false. Plan sponsors should instead help members maintain their living standards in retirement by using the Living Standard Replacement Rate (LSRRTM). Given the waves of uncertainty in 2020 and possibly going forward, providing members with a savings target based on living standard continuity will help provide employees comfort on their current path to retirement or act as a trigger to revisit and revise their retirement plan.

2021 Concerns Lord

Bernard Lord, chief executive officer of Medavie Blue Cross, is concerned for 2021. He told the ‘Employers Perspectives on 2020’ session at its ‘Benefits Together 2020’ event, when there's a crisis, people respond. For example, “when there's a fire, you know what to do and adrenaline kicks in.” This can even happen in a situation like a pandemic. “Everyone responded and everyone acted very quickly and collectively overall we've done a good job,” he said. However, it is what we are facing, he said, whether it's second wave or subsequent small waves until there is a vaccine, that is an unknown. Also unknown is whether there will be a vaccine, how quickly it will be distributed, and the impact of these are “all unknowns at this moment.” There's no certainty that there will be a vaccine before 2021 or even in 2021, so “we all need resiliency in accepting that there may be uncertainty for quite some time,” he said.

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

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