My last column, in April, talked about how Canadian target-date fund suites behaved differently during the first quarter of this year, where markets were reacting to the coronavirus crisis. The disparity of year-to-date returns continued in the following months. For some capital accumulation plan sponsors, the behaviour of their plans’ TDFs over recent volatile market […]
In this time of pandemic, a lot has been shared about the woes of defined benefit pension plans, but members of capital accumulation plans are also feeling the impact, even though few have even noticed. Fortunately, target-date funds and lifecycle portfolios have really helped. But the government and provincial regulators need to help as well. Once […]
From decumulation options to investment choice, capital accumulation plan members face several challenges when they reach retirement. On the decumulation front, many members leave their assets with their final employer’s pension provider, which offers group registered retirement income funds or life income funds with well-managed investment options and lower management fees. As well, an increasing number […]
A few years back, we held a session at the annual Avantages Montreal DC conference and asked the sponsor audience how likely they would get involved in helping DC members optimize their retirement income, post-accumulation. Sadly, only two out of the 50 or so sponsors present said they would. But it looks like things are changing.
The year 2013 resulted in fantastic news for DC plan members: great returns from most asset classes and increases in interest rates, translating into both larger accumulated savings and better expected retirement income levels—particularly for those planning to purchase a life annuity.
Before I comment about this long-awaited report, I must indicate that I’ve been a pension consultant almost exclusively dedicated to DC for more than 10 years now. One of the key reasons for my switch to DC was the lack of serious attention given to DC by a DB-driven pension industry.
Due to the dire financial situation of DB arrangements, more DB plan sponsors have started moving to DC over the last few years. For many, DC represents a minute portion of their pension arrangements, oftentimes limited to new hires, for instance. Many pension committees oversee these combined DB/DC schemes and aren’t sure how to manage the DC component.
Target date products (funds or automated portfolios) automatically reduce the exposure to equity and other risky assets of a DC member’s invested savings as he/she approaches retirement. But is this reduction in risk good for everyone?
Target-date funds or life-cycle portfolios now represent the most frequently used default investment option for new Canadian DC arrangements. And they are quickly replacing passé default options such as money market funds—which are currently providing a lot of members with negative net returns these days—or balanced funds. Yet it is surprising how many of these pre-packaged, easy-to-use solutions remain quite conservative and basic in how they are constructed.
The federal government has created the pooled registered pension plan (PRPP) in the hopes that provinces would each adopt a bill creating a similar product for their own pension jurisdiction.