Enhancing Capital Accumulation Plan outcomes in Canada

Capital Accumulation Plan Income Tracker (CAPit) – October 2024

Despite declining annuity rates, members retiring at the end of September will have experienced some of the best outcomes in more than 13 years from Capital Accumulation Plans (CAPs). A male member retiring at the end of September 2024 achieved a gross income replacement ratio of 65.4% and a female member achieved 63.7%. This is good news for CAP members and aligns nicely with the newly released updated CAPSA Guideline No. 3: Guideline for Capital Accumulation Plans (CAP Guideline) which aims to improve member outcomes.

SPECIAL NOTICE

Plan growth and improved member outcomes: The updated Guideline for Capital Accumulation Plans

Key updates in the 2024 CAP Guideline

The updated CAP Guideline (released on September 9th) was developed in consultation with industry stakeholders over two years. The new Guideline reflects the continued evolution of CAP practices in Canada and is intended to empower members with the information and tools they need to achieve better retirement outcomes.

Key updates include:

  1. Strengthening Governance: CAP sponsors should document governance frameworks to define roles, communication processes, and risk management processes to ensure accountability.
  2. Clarifying Roles: The Guideline promotes greater transparency in contracts and requires service providers to disclose whether they offer investment advice and receive financial benefits in exchange for that advice.
  3. Empowering Members: To emphasize the role members play in their own financial planning, they are now more empowered to make better-informed decisions about their contributions and investments.
  4. Investment Management: Sponsors remain accountable for selecting and reviewing investment options while ensuring that the default fund option is suitable as the core of members’ investments.
  5. Education and Communication: The Guideline emphasizes ongoing member education, with clear communication about CAP features, fees, and retirement projections.
  6. Decumulation Planning: CAP sponsors should inform members about income options as they approach retirement to aid in better-informed financial decisions.
  7. Data Protection: CAP sponsors should put controls in place to safeguard personal data and maintain accurate records to build member trust.

Impact and Next Steps

The 2024 Guideline seeks to enhance member outcomes through better governance and education. CAP sponsors should:

  • Document governance roles and performance criteria
  • Develop clear communication strategies
  • Conduct reviews of service providers
  • Provide resources for retirement income navigation
  • Ensure transparency about fees

The updated CAP Guideline represents a significant step in enhancing the governance of Canadians’ retirement savings. With a focus on clarity and accountability, CAPSA has sought to improve the effectiveness of CAPs as retirement savings vehicles and empower members to take control of their financial futures.

About the CAP Income Tracker

The CAP Income Tracker assumes the member made annual contributions at a rate of 10% starting at age 40, will receive maximum Old Age Security and Canada/ Quebec Pension Plan payments, and will use their CAP account balance at retirement to buy an annuity. The member’s CAP account is invested based on a balanced strategy. Salary has been adjusted annually in line with changes in the average industrial wage, and is set at $73,777 at September 30, 2024.

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This issue of CAPit has been prepared for general information purposes only and does not constitute professional advice. Should you require professional advice based on the contents of this publication, please contact an Eckler consultant.