Mercer released its outlook on the retirement industry for this next year, predicting significant change as employers develop new ways of meeting their employees’ demands to accommodate for an ever-changing reality when it come to pensions.
Over 5000 Canadians retire each week, a number expected to rise to 8000 by 2020. Currently, over 50 per cent of funded pension systems are made up of defined benefit pension assets. However, capital accumulation plans, also known as defined contribution plans (DC), are becoming increasingly popular with companies offering retirement benefits.
Jean-Philippe Provost, Senior Partner and Wealth Business Leader for Mercer Canada, said “The industry faces challenges that require industry leaders, corporations and various levels of government to work together on new solutions and products that will help Canadian workers achieve a comfortable retirement. Employers need strategies to free up resources so they can invest in future cohorts of workers, while at the same time identifying new ways to deliver DC plans effectively.”
With the rise of popularity of capital accumulation plans, employers will need to encourage employee engagement in retirement savings. As a solution, in February 2016 Mercer introduced the Mercer Pension Risk Exchange. This online marketplace aims to bring together sponsors looking for inexpensive, low-risk, and transparent insurers of group annuities. Mercer says that since its launch last year, the exchange “has supported the placement of 45 per cent of group annuities purchased by Canadian plan sponsors.”
Record year expected
With the improvement in economic conditions seen at the end of 2016, Mercer forecasts that 2017 will be a record year in the group annuity purchase space “as sponsors of defined benefit plans continue to explore necessary steps to de-risk their plans”.
“Managing the legacy pension obligation is going to be a priority for defined benefit plan sponsors, as a quarter of the Canadian population will be over 65 by 2020,” said Provost. “We saw nearly $3B worth of group annuity contracts bought in 2016 and we expect this market to grow in 2017 as new solutions are now available to meet the needs of plans of all sizes.”