Using “smart-default” strategies, including the purchase of an annuity in installments, could help Canadians save better for retirement, said Thomas Reid, senior vice-president, group retirement services, Sun Life Financial Canada.
Reid spoke at the Economic Club of Canada’s third annual Financial Literacy Panel in Toronto on Wednesday.
“Even if we could imagine a world of perfect financial literacy I think there would still be a tendency for people just to … not do the things they should be doing, in this case, to save for retirement,” said Reid. “[And so] what we’re doing is implementing what we call “smart defaults” as part of the retirement savings business.”
These smart-defaults include auto-enrollment into defined contributions, auto-escalation, meaning a person’s contribution rate would rise as their income increases, and products such as target-date funds that automatically decrease the amount of equity held in the investment as a person approaches retirement
While these strategies help individuals save for retirement, Reid said the next step is to create an automatic solution that will help people to convert those savings into retirement income.
One solution Sun Life is currently working on, according to Reid, is to allow for annuities to be purchased in installments over a certain period of time – perhaps 10 years – before an individual retires. Said Reid: “You’re dollar-cost averaging the annuity rather than taking one big gamble at the date of your retirement.”
Reid said Sun Life is looking to possibly implement such a program in the next year or two.