Eye on the prize: Outcome-focused decision-making critical to achieving lifetime retirement income

By Dianne Tamburro, Principal, CFA, Practice Leader, Defined Contribution

Insights – November 2023

All views expressed are the author’s own and do not necessarily reflect the official position of any agency, organization, plan sponsor or company.

It has been widely reported that membership in defined benefit (DB) pension plans has been declining over the past several decades. In fact, only one in 10 Canadians employed in the private sector will see retirement income from workplace DB plans. In response, Canadians have contributed nearly $1.5 trillion to registered retirement savings plans (RRSPs) and defined contribution (DC) pension plans1.

Against this backdrop, the Technical Advisory Committee (TAC) on DC plans collaborated with the Office of the Superintendent of Financial Institutions (OSFI) and the Financial Services Regulatory Authority of Ontario (FSRA) to develop recommendations to improve outcomes for DC plan members while improving regulatory effectiveness and efficiency. Following the work of the TAC, FRSA established a Standing Technical Advisory Committee for Defined Contribution Pension Plans, which I am delighted to be a member, to continue to review issues related to the administration and regulation of DC plans and is an important part of FSRA’s stakeholder engagement process.

Given the wide acceptance of the Guidelines for Capital Accumulation Plans (CAP Guidelines) of the Joint Forum of Financial Market Regulators, the Committee favoured putting forward its recommendations to the Canadian Association of Pension Supervisory Authorities (CAPSA) to continue to support regulatory harmonization and efficiency across Canada as well as improved education of plan administrators/sponsors.

In alignment with the priorities established in their  April 2019-March 2022 Strategic Plan, CAPSA released an updated draft of Guideline No. 3 – Capital Accumulation Plans in May of 2022 and a further revision in May 2023. The Guidelines set out a number of specific responsibilities for CAP sponsors, providers and plan members as well as recommendations for industry best practices. The recent 2023-2026 Strategic Plan echos their commitment to finalizing the draft guidelines.

The first recommendation of the FSRA/OSFI advisory committee, “outcome-focused decision-making,” recognizes that the CAP landscape has evolved significantly in the twenty years since the inception of the original Guidelines.

The recommendations and best practices outlined in the new draft provide for a greater focus on securing optimal outcomes for plan members. As the Committee noted, and as is articulated in the Guidelines, “CAP sponsors should clearly define and document the purpose of the CAP, in terms of its intended outcome for members. It is crucial for CAP sponsors to have a clear sense of the plan’s purpose for decision-making, to assist in prioritizing decisions with the greatest impact on outcomes.”

Contributions and investment structure

The impact of employer matching contributions on member outcomes can be substantial. Early plan participation and optimizing savings through additional voluntary contributions to take advantage of matching employer contributions will drive improved outcomes. The more money that goes into a plan, and the sooner it goes in to take advantage of compounding interest, greatly increase the chances of improved savings at retirement. In fact, Guideline No. 3 sets out clear expectations for providing information to, or making information available to, CAP members including information on “how members may take advantage of any existing CAP features to improve their potential outcomes, such as employer contribution matching, voluntary contributions, or transfers into the CAP from other plans”, as well as detailed information on the member statement about features of the CAP (such as employer matching or employee voluntary contributions) that the member is not taking advantage of.

Investment selections and member asset allocations over time also play a significant role in member outcomes. Ensuring members have adequate growth investments early in their careers and then more stable investments as retirement occurs will provide access to compound returns and protection of capital at different phases of their life. Given this importance, the Guidelines are equally prescriptive with respect to investment options and state that member communication should include the intended objective and risk profile associated with each investment option (including the default option), how to choose among the investment options and associated fees.

Given that the burden falls on CAP members for ensuring optimal savings and investment allocations over time, sponsors should consider both their member demographic and needs as well as the role of the plan when establishing contribution and investment plan design features. Understanding the demographics of your membership – not just age and salary, but also the level of their general retirement plan and investment knowledge as well as the time they dedicate to reviewing the information provided should be among the highest priorities for plan design and administration.

Renewed commitment to finalizing the draft Guidelines provides an ideal opportunity to reignite the conversation about CAP governance – particularly where it concerns investment structure. While most plans uphold basic best practice principles such as the formation of steering committees, regularly scheduled meetings, and fund performance monitoring, few have drafted a core set of investment beliefs as is the case for a majority of DB plans. The Guidelines confirm a number of factors a CAP sponsor should consider when choosing investment options and responsibilities for monitoring the ongoing performance of each. Investment beliefs serve as the guiding philosophy to ensure alignment between what the plan sponsor decides about the investment vision for the plan, what management does to bring this vision to life and what the plan members should expect. Perhaps most important, it will also form part of the blueprint for supporting retirement outcomes.

As a best-practice, investment beliefs should be documented and reviewed at least bi-annually.  Many plan sponsors are beginning to incorporate their investment beliefs into their Statement of Investment Policies and Procedures (SIPP), while others have created a stand-alone investment beliefs document.

Member education and professional support

Clearly, an ongoing member education strategy that is aligned to the purpose and intended outcome of the CAP and is designed to improve member decisions and outcomes, is critical for ensuring optimal retirement outcomes for Canadians. The CAPSA Member Guide for Defined Contribution Pension Plans, a plain-language guide focused on supporting improved awareness and understanding of DC plans, provides a vital source of information to support plan members in achieving good retirement outcomes through membership in a DC plan. However, the Guidelines confirm what has long been understood in the financial planning industry: financial literacy among Canadians is low and plan sponsors play a vital role in educating plan members about both the “mechanics” of a workplace savings plan and the impact on retirement security of the member decisions taken.

Recent research shows more than half of Canadians say they do not know how much they need to save for retirement and nearly two-thirds of working Canadians worry about running out of money during retirement. For employers, employee financial stress translates to significant impact on the bottom line. Employee financial stress can lead to reduced productivity, increased absenteeism and delayed retirement. In fact, according to a recent survey by the National Payroll Institute, employees worrying about finances while at work, had a bottom-line impact of $40B in 2022, or $1,000 per employee.

We are pleased that the Guidelines reference the potential role that qualified financial planners play in supporting member decisions – and the best practices for communicating fee arrangements and potential conflicts of interest. The results of the FP Canada™ 2023 Financial Stress Index bear out the benefits of professional support. According to the survey, one-in-four Canadians who use a financial planner say they do not have any financial regrets, compared to 17 per cent of Canadians who do not have a financial planner.

While online calculators and educational resources do an excellent job of providing Canadians with data and information, for the majority, more personal support is needed to help them put numbers into context and motivate action to achieve their goals. Employers are uniquely positioned to support this more personalized approach to retirement planning. They can directly communicate appropriate retirement financial planning to large groups of Canadians and most important, their employees trust and consider them a source of unbiased information. Leveraging these strengths and supporting more informed retirement financial decisions is good for employees – and for employers.


No discussion of the shifting DC landscape or member-focused outcomes would be complete without mention of decumulation options. The Committee was clear that effective decumulation options are critical to producing the intended outcomes of DC plans and recommended that FSRA and OSFI continue to explore and consider opportunities to support DC plan administrators in providing decumulation options to their plan members within the existing regulatory and legislative framework. The draft Guidelines emphasize equal importance to the decumulation phase as the accumulation phase. Members should be provided information about the decumulation options available, the benefits and risks associated with each option and how to transfer assets to the available decumulation options. In addition, members should be provided an explanation of fees and expenses associated with the various decumulation options.

While it is certainly encouraging that Canadians have contributed more than a trillion dollars to CAPs, what Canadians need most of all is an affordable, readily available option to convert retirement savings into monthly lifetime income. Motivated by this “gap” in the system, our industry colleagues at the National Institute of Ageing formed a coalition of leading pension experts (including Eckler’s resident scholar Bonnie-Jeanne MacDonald and Laura Strachan, a senior pension actuary at Eckler), organizations and industry stakeholders to ask the federal government to change tax and pension legislation to allow for a “shared risk” decumulation option, called Dynamic Pension Pools (“DP Pools”), or Variable Payment Life Annuity (VPLA), that would let Canadians combine their registered savings at retirement and generate lifetime pension income less expensively than with a traditional annuity. DP Pool options have been recognized around the globe as a solution for the decumulation dilemma faced by retiring DC plan members for a number of years, however, they are not widely available in Canada. The NIA’s report, Affordable Lifetime Pension Income for a Better Tomorrow: How We Can Address the $1.5-trillion Decumulation Disconnect in the Canadian Retirement Income System with Dynamic Pension Pools, does an excellent job of articulating why DP Pools are so urgently needed in Canada.

DP Pools allow Canadians to benefit from plan sponsor oversight and pooling of investment and mortality risks. This can dramatically increase the amount of retirement income generated, ensure retirement income for the life of the member, and significantly lessen the burden of navigating a complex retail market. In the last budget, the federal government continued to move forward with its promise to make DP Pools (or VPLAs) a reality in Canada. Federal legislation received royal asset in June 2023 and some provinces have also implemented legislation for DP Pools (or VPLAs). Both federal and provincial regulations are still to come.

Each of the CAPSA Guidelines and the ongoing work of the various committees will play a significant role in supporting retirement outcomes for millions of Canadians. We are pleased that CAPSA’s 2023 – 2026 strategic priorities will include work to further progress CAP and Risk Management Guidelines, updating current guidelines in the area of decumulation as well as continuing work to further a policy framework for VPLAs (DP Pools).

As more retiring Canadians continue to face the complex challenge of turning savings into lifetime retirement income with minimal options that currently only include an expensive retail life annuity or a Life Income Fund for locked-in funds (or Registered Retirement Income Fund for RRSP assets), additional support, innovation and more collaboration from industry and government regulators is paramount to ensuring Canadians have what they need most – reliable lifetime income that replaces employment wages. This is the “prize” for a lifetime of saving and investing.

1 (MacDonald et al. 2021).