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DC Members Need To Work Longer

Changes in capital market returns and annuity purchase prices would have an impact on the potential retirement age of a Canadian worker in a benchmark Defined Contribution pension plan, says Towers Watson. Its ‘Defined Contribution (DC) Retirement Age Index’ says a 60-year old DC plan member  who wants to match the retirement benefits of a benchmark DC member who retired at age 60 at the end of 2007 after 20 years of contributing would need to work until the age of 68½, an extra 8½ years. Michelle Loder, Canadian DC Business Leader at Towers Watson, says “from a retirement planning perspective, the index results really demonstrate the risks that DC plan members face in trying to juggle long-term investment assumptions with what we call ‘end point’ sensitivity.” End point sensitivity refers to the impact that the timing of a decision to retire can have on the funds available in retirement due to changes in both investment returns and annuity prices. The benchmark plan member who contributed to the plan for 20 years and retired at age 60 at December 31, 2007 experienced an annualized average investment return of 7.2 per cent.  In contrast, a plan member with the same length of contribution history, but who retired on September 30, 2012, experienced an average return of 6.3 per cent.  Loder says while “0.9 per cent may not sound like much,” it actually can translate into tens of thousands of dollars that will not be available to the second plan member to secure in retirement income through an annuity.”

Courtesy of Benefits and Pensions Monitor website News Alerts

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