As defined contribution plans mature, Canada is seeing the first wave of retirees that only have DC plans and plan sponsors are facing the challenges of this decumulation phase.

Speaking during a session at Benefits Canada’s 2025 DC Plan Summit, Yashar Zarrabian, regional vice-president for Quebec at Sun Life Financial Inc., outlined three pillars to facilitate the journey to retirement: engagement and advice, the transition between accumulation and decumulation and innovation.

Before exploring these three pillars, he highlighted changing demographics. According to the United Nations, Canada is considered a super-aged country, which means at least 20 per cent of the population is aged 65 or older. At the same time, there are four different generations in the workforce, he noted, so plan sponsors have to provide flexibility.

Read: 2023 DC Plan Summit: A look at McGill University’s search for a comprehensive decumulation solution

Decumulation is much more complex than accumulation, said Zarrabian. “The reason why is, when you’re approaching retirement, especially in the DC market, a member has to make a decision based on multiple factors that are hard to predetermine,” such as longevity risk, inflation risk, market-related risk and rising health-care costs.

From a plan sponsor perspective, the majority of plan sponsors don’t want to be involved in the decumulation phase, he said, but they do believe in innovation and that the industry needs to do a better job of putting out new products and solutions. Traditionally, these solutions have included an annuity, which delivers a steady income, and a life income fund or retirement income fund, which offers flexibility.

“There’s a new wave of products coming up based on target-age solutions for decumulation,” he added, noting this innovation takes the best of both worlds by providing a steady income that’s predetermined while capital continues to grow.

Read: 2024 DC Investment Forum: New decumulation product combining income predictability with capital availability

Zarrabian set out an example of a 65-year-old DC plan member who’s saved $300,000 and chose the target age of 90. The investment vehicle is a 50/50 balanced portfolio with a potential return of 4.5 per cent. If the return improves, the steady income will rise as a result. But if the plan member needs to withdraw a large amount, like $15,000 to support their granddaughter’s wedding, they have the flexibility to access their capital.

“Every year, the payments will change based on the return of the fund, but again, you’re choosing a fund that’s supported by the decumulation phase.”

The transition from accumulation to decumulation is a big step for plan members, so they need to receive help from a professional, he said, noting the industry also needs to do a better job at making the process more seamless.

Read more coverage of the 2025 DC Plan Summit.