May 1, 2023

Study finds support for more in-plan DC decumulation options: PIMCO

A recent study from PIMCO Canada has found that consultants, advisors and plan sponsors serving the defined contribution (DC) sector feel plan retirees should have more “in-plan” options for the decumulation, or drawdown stage.

The study was designed to help industry supporters “understand the breadth of views and consulting services within the Canadian DC marketplace,” PIMCO’s media release notes. The study, released earlier this year, asked questions of “12 major recordkeeping, consulting and advisory firms that serve roughly 36,000 Canadian clients,” the release continues.

A whopping 92 per cent of respondents “believe retirees should be able to remain in plan with investments that suit their needs,” the release notes. All respondents believe that “recordkeepers should offer and support in-plan decumulation options.”

A bit of background here. A DC plan typically has two phases in its working lifetime. There is an “accumulation” phase, where savings are collected and then invested for the future.

When the individual decides to turn those savings into an income stream, it is called the “decumulation” or “drawdown” phase.

Typically, the options for a retiring member are to convert some or all of their money to an annuity, which provides them a monthly pension for life, or to continue to invest the savings in a registered retirement income fund-type vehicle, where they are required to withdraw a set amount each year. All of these options are designed to provide a retired person with income from their savings.

So the research suggests that there’s a strong interest in having people keep their savings within their DC plans when it’s time to collect the income, versus transferring it out.

Other study findings looked at how the DC plan’s investments should be managed.

Interestingly, 91 per cent of respondents thought exposure to equity markets (like stocks) was “extremely important or very important” for DC plans to offer. That’s up 27 per cent over 2021, PIMCO’s release notes.

At the same time, 82 per cent of respondents feel inflation protection is an important investment objective, while 54 per cent felt capital preservation was also an important consideration.

Thinking about decumulation-related investing, the majority thought a “target date fund” approach, where one’s exposure to equities is reduced every year you get older, was the top approach. Annuities were favoured by 27 per cent of respondents as a good decumulation approach.

It’s clear that figuring out how to turn savings into income is a top concern among those who are running/consulting on DC plans — “100 per cent of respondents are either recommending or currently evaluating new investments designed for retired participants.”

This is all pretty technical-sounding, but is less complex than it sounds. Saving is something we understand — think of money going into an account that is then invested. The trickier part is drawing it down, because you want to get an income from the savings without running out of money. So you don’t want to take out too much at the front end of retirement in case you run out at the back end.

The simplest way to make sure your piggy bank is never completely empty is to consider annuitizing all or some of your retirement savings. This is an option offered by the Saskatchewan Pension Plan. If you choose this for some or all of your savings, you’ll get a payment on the first of the month for the rest of your life from SPP. Check out SPP’s retirement income options today! Also new — the rules for contributing to SPP have changed. You can now contribute any amount annually up to your registered retirement savings plan (RRSP) contribution limit. And, if you are transferring funds from an RRSP into SPP, there is no longer an annual limit on how much you can transfer! Your retirement future with SPP is now limitless!

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Written by Martin Biefer

Martin Biefer is Senior Pension Writer at Avery & Kerr Communications in Nepean, Ontario. A veteran reporter, editor and pension communicator, he’s now a freelancer. Interests include golf, line dancing and classic rock, and playing guitar. Got a story idea? Let Martin know via LinkedIn.

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