New approach aims to simplify decumulation while giving Canadians flexibility and financial control
A recent article by Benefits and Pension Monitor highlights the challenges Canadians face in converting retirement savings into reliable income.
Despite improved saving habits, many struggle with retirement planning, leaving questions about why current solutions often fall short.
Anne Meloche, head of institutional business at Sun Life Global Investments, and Michael Carter, assistant vice president of product development and sponsor experience for Sun Life Group Retirement Services, are addressing these concerns.
Carter remarked, “Retirement is potentially one of the trickiest financial problems that people need to solve because there are so many unknowns.”
According to the article, workplace pensions and employer-sponsored plans form the foundation of many Canadians’ financial security in retirement.
However, while defined-contribution (DC) plans provide tools like auto-enrolment and target date funds, they often lack supports for decumulation. This leaves retirees to manage their savings independently, increasing risks.
Meloche noted that many plan members fail to create formal financial plans despite the education and support available.
“People don’t take advantage of the advice available, and that leaves them vulnerable when they retire,” she emphasised.
Sun Life’s ‘target age solution’ seeks to address these gaps by automating income decisions based on a member’s chosen maturity age. Inspired by target date funds, this approach aims to simplify retirement income planning.
“62 percent of Sun Life’s plan members are already invested in target date funds, so offering something similar for the decumulation phase makes sense,” Carter explained.
The solution adjusts payments annually based on fund performance, additional withdrawals, and regulatory requirements. Retirees can also modify their maturity age in response to changing life expectancy or unforeseen circumstances.
Longevity risks, cognitive decline, and the desire for flexibility pose significant challenges.
Carter highlighted the risks associated with cognitive decline, noting that 18 percent of Canadians aged 60 and older enter retirement with mild cognitive impairment.
The target age solution’s portfolio is designed to balance returns with risk reduction, combining equities, fixed income, and alternatives like REITs and listed infrastructure.
“We want to make sure the money lasts while also maintaining living standards,” Meloche explained.
Sun Life’s vision extends beyond individual solutions.
Meloche stated, “We’re going to be bold. We hope this will become a universal solution for the non-guaranteed portion of the decumulation portfolio.”
Carter added, “Anything worth doing is worth doing big. We believe this can turn a traditionally negative conversation about running out of money in retirement into a positive one.”
