Rather than a single defined contribution plan sponsor tackling the decumulation dilemma alone, decisions need to be reframed as a decumulation ecosystem, said Nicole Lomax, vice-president and portfolio manager in institutional asset allocation at TD Asset Management Inc.

During a session at Benefits Canada’s 2025 DC Plan Summit, she outlined the five decumulation priorities based on plan member’s individual circumstances: member income, income growth, income stability, longevity risk and capital flexibility. She also acknowledged the trade-offs between these priorities. “When we think about solving the decumulation dilemma, is there a rising tide that can lift all priorities?”

The game of trade-offs, said Lomax, comes down to sequence of return risk. “This is a unique risk that exists for members when they’re decumulating capital. It’s the danger that the timing of their withdrawals can permanently lock in losses and can have a negative and permanent impact to their overall account balance.”

Read: How can DC plan sponsors solve the decumulation problem?

Improving a portfolio’s risk-adjusted return is one way to reduce this risk, she said, noting one of the investment industry’s common tools is to invest in private assets. While defined benefit plans’ average allocation to these assets is 31 per cent, the average for DC plans is only about 0.1 per cent. “A stark difference for one of the most effective tools to improve the risk-adjusted returns.”

Another common tool is diversification, which can smooth out the return path, providing plan members with a more steady ride for their investments, said Lomax, as well as inflation hedging and capital preservation.

Returning to the decumulation ecosystem, she bucketed the current tools into three main categories: annuities, bond ladder or fixed income strategies and withdrawal strategies. Each of these tools fit with plan member priorities at different levels, she noted. For example, an annuity has a high alignment with income stability and full longevity protection, but in terms of trade-offs, member income tends to be a bit lower, there’s no capital flexibility and, in the case of a fixed annuity, no income growth.

Looking at withdrawal strategies, which are either static or dynamic, DC plan members can continue to invest in their assets and make routine withdrawals from the account. In the dynamic example, plan members are changing how much they withdrawal based on how the investments are doing, said Lomax, so trade-offs include low income stability, full flexibility and longevity protection.

Read: Coalition of experts creating roadmap for implementing VPLAs

“All of these tools are currently available today and plan members can make a combination of these to match their unique decumulation priorities.”

One of the solutions on the horizon in the decumulation ecosystem is variable payment life annuities, she said, in which members make a lump-sum contribution that’s invested on behalf of a pool and receive a dynamic payout. Comparing VPLAs to the dynamic withdrawal strategy, she noted, the difference is the trade-off between capital flexibility and longevity protection.

“We really need to reduce the variable part of a variable payment life annuity,” said Lomax, noting that means focusing on improving the risk-adjusted return. “By incorporating private alternatives into an investment mix, you can effectively improve your member income, improve income growth and improve income stability simply by looking at the investments that are associated with those options,” she added.

Read more coverage of the 2025 DC Plan Summit.