‘With dynamic pension funds, savings in DC plans are now on the same footing as DB plans,’ says Louis-Bernard Désilets
Defined contribution (DC) plan members have historically faced an uncomfortable reality at retirement: a pot of savings and no clear path to turn it into reliable income, particularly as the tools available like RRIFs, LIFs and annuities each come with their own shortcomings.
But dynamic pension funds - also known as variable payment life annuitites (VPLAs) - now formalized in Quebec, aim to change that equation.
"It's the ultimate end game of a pension plan for people who are looking to transform their savings into a lifetime income," said Louis-Bernard Désilets, partner, pensions at Normandin Beaudry. "Unlike the traditional decumulation options that we're used to, such as the RRIFs or the LIFs, there's no investment or withdrawal decisions to make."
The problem with traditional drawdown approaches is that retirees are left guessing. The fear of outliving their money often leads to under-spending, leaving retirees living more frugally than necessary.
To that end, Désilets argues that the dynamic pension fund structure “provides dependable income for life” and removes the need for ongoing decision-making, which many retirees find daunting, risky, or both. In his words, a dynamic pension fund is “really like what we call a RRIF with a license to spend,” giving retirees the confidence to use their money without a constant fear of running out, and putting DC savings much closer to DB plans in terms of security and income certainty, he said.
Désilets acknowledged the oversight framework for dynamic pension funds is intentionally lighter than for traditional pension plans. He boils it down to three core obligations: adjusting pensions each year based on the fund’s actual investment returns, periodically updating for observed mortality experience at least every three years, and producing an actuarial valuation report every three years to validate those adjustments.
The mechanics matter here. Désilets argues that a dynamic pension fund tackles the central problem of decumulation - retirees’ fear of spending down their assets. But by pooling longevity and investment risk across many members, it can support a higher and more sustainable payout than most individuals would feel comfortable drawing from a self-managed RRIF, especially in their seventies and eighties.
For example, Désilets points to a 4 per cent reference rate as a likely benchmark. Under those conditions, a 65-year-old male purchasing a pension with a 15-year guarantee would receive 6.6 per cent of their capital annually. At age 70, that figure rises to 7.3 per cent and at 75, it's 8 per cent.
In practice, that means retirees can invest more growth‑oriented than they typically would on their own and still have a structured income stream. That predictability also extends to simplicity, predictability and planning as workers approaching retirement can calculate exactly what income their savings will generate years before they stop working.
"The conversion factors are set in advance, which provides certainty as to the amount of income that you can purchase. And that really is a game changer," he said. "Because that's not the case when you purchase a traditional annuity where the cost is marked to market, for example."
Once the reference rate and mortality assumptions are set, the factors used to turn capital into income are locked in. Those fixed conversion factors - illustrated by payout rates that rise with age - give members clear, upfront visibility into how much annual income a given pot of savings can buy.
He believes that certainty is a fundamental shift from traditional annuities, where pricing moves with markets, and from ad hoc drawdown strategies, where retirees must constantly reassess. Against traditional annuities, he notes three main points - the income you can buy is determined upfront through preset conversion factors, the starting payout is generally expected to be higher, and there is real potential for that income to grow over time.
While the annual pension amount will fluctuate based on fund returns and mortality experience, Désilets underscored that "there will be less variability than in a traditional RRIF drawdown approach, so the income becomes more predictable," he said.
He believes that puts a clear onus on sponsors as they need to show concrete, numeric examples of how the mechanism works and give members calculators or similar tools so they can see what level of income their own capital might buy.
He also thinks sponsors should position dynamic pensions as one component within a broader decumulation strategy, not a standalone answer. That means framing them as a good fit for covering predictable, recurring expenses, while encouraging members to keep some assets in RRIFs or TFSAs for irregular or unexpected costs.
He ties this to other planning levers, such as delaying CPP and OAS to boost public benefits, with the dynamic pension serving as the stable base of retirement income.
He argues that any organization looking to offer a dynamic pension fund has a specific set of jobs to get right. They need to lock down an investment strategy and long‑term pricing assumptions, including the reference rate and mortality basis, and decide on detailed benefit features such as death benefits, minimum and maximum purchase amounts, and eligibility ages. The reference rate, he stresses, will be fixed for a long period, so it cannot be set casually.
He also emphasized that the impact isn’t limited to employees in large workplace plans. By opening up this structure through vehicles like VRSPs, he expects that private‑sector workers without DB coverage and even freelancers will finally have access to a pension solution at the point where they need it.
Désilets emphasized how transformative this can be for DC plans going forward.
"This will transform savings in DC plans into a better, a far better option, which is a role of a funding engine with set conversion factors for decumulation," he said. "With the dynamic pension funds, we could say, in a certain way, savings in DC plans are now on the same footing as DB plans.”
Désilets believes Quebec’s move is only the first step in a broader national shift. In his view, most provinces have already aligned their PRPP frameworks closely with the federal model so they are effectively in a holding pattern until Ottawa updates its regulations to accommodate dynamic pensions.
Once that happens, he expects provinces to replicate those changes to keep rules consistent across jurisdictions. He sees Quebec as having moved early, working closely with CAPSA, but he fully expects other regions to follow.
Looking ahead, he anticipates that within a couple of years, Canada could see three major dynamic pension funds established - one based in Quebec, one serving the Maritimes and one in the Prairies - each acting as a hub to absorb large pools of DC and similar savings from retirees seeking structured decumulation options.
