As the prevalence of DC pension plans continues to rise, the market is now turning its attention to a common challenge: how can we help people turn their DC savings into a reliable retirement income that lasts for the rest of their lives?
In a recent Globe and Mail article, pension expert Bonnie-Jeanne MacDonald of the National Institute on Ageing at Ryerson University suggests the creation of a pooled-risk pension, allowing members to use their DC savings to buy a secure pension income to last them the rest of their days. With this new option, the investment and longevity risks that each member faces would be reduced by pooling together the DC assets of many members. Having many members sharing the investment risk would lessen the impact of a market downturn which would be challenging to handle as an individual investor. And the longevity risk (i.e., the risk of outliving your savings) would be lessened because the large pool of members would allow for an actuary to estimate what will happen each year, and calculate an adequate pension income, with greater certainty.
Unfortunately, the pooled-risk pension isn’t an option in Canada right now. But in the absence of a pooled solution, the Canadian Baptist Pension Plan (CBPP) has some important features to support your transition to retirement and help you with your retirement income solutions.
Group LIF/RIF – When you retire with a DC pension plan, you need to convert your savings into an income stream. Usually, you have a choice between buying an annuity, and/or transferring your savings out of the plan and into a locked-in vehicle [like a life income fund (LIF) for DC pension assets or retirement income fund (RIF) for RRSP assets] at another financial institution. However, the CBPP offers its own in-plan Group LIF/RIF. It’s a progressive approach to managing retirement income – one we’ve put in place to help take care of our members future.
Not all plans offer a Group LIF/RIF, but ours does, and it comes with some important advantages. Keeping your money in the CBPP when you retire allows you to maintain many of the same benefits you have now as an active member. You will pay significantly lower investment fees than what you would pay to invest your funds at your local bank. You’ll also benefit from ongoing oversight of the program by CBPP. You continue to have the same investment options in addition to a special Retirement Fund specifically designed for CBPP retirees.
Ready to Retire – When you’re nearing retirement, support is available free of charge to our members through the Ready to Retire program. This program can help you make informed decisions, fill out paperwork and act as a liaison with financial institutions, if needed. If you have any questions about retirement or the transition process, email firstname.lastname@example.org.
These are just a few examples of the support CBM offers to help you retire successfully. Be sure to read next month’s blog entry on lifestyle expectations in retirement and how they’re connected to how much you need save – you may need less than you think!