CAP income replacement levels up from all-time lows in March: report

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Ascending Growth Trends Movement Performance Financial Chart Status Report © Artur Szczybylo /123RF Stock PhotosThe average gross income replacement ratio for a typical defined contribution plan member was up at the end of September, according to Eckler Ltd.’s latest capital accumulation plan income tracker.

It found a typical male DC plan member retiring at age 65 at the end of month saw their gross income replacement ratio returned to 56 per cent from the all-time low of 53.1 per cent in March. For a female DC plan member, the ratio increased to 54.5 per cent from the all-time low of 51.6 per cent at the end of March.

“With three quarters of 2020 behind us, given the resurgence of COVID-19 cases and new lockdown measures that will continue to weigh on economies, uncertainty is likely to remain the theme for the rest of the year,” noted a press release. “The resilience of the equity markets following the sharp market contraction in the spring has helped push the recovery of retirement incomes toward pre-pandemic levels.”

Since the tracker was introduced in 2006, the gross income replacement ratio for a typical CAP member has been trending downward. More importantly, however, this trend has also impacted the ability of CAP members to maintain their standard of living in retirement, said Eckler.

The CAP income tracker assumes the member made annual contributions at a rate of 10 per cent 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 account is invested based on a balanced strategy.

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