The research "A GROWING CONCERN: How is rising inflation impacting retirement savings?" addresses the recent increase in inflation rates in Canada and its impact on retirement savings.

 Introduction

Due to the recent collapse of the US banks and the rising concerns about a potential crisis, I decided to find a related research for similar issues. The research "A GROWING CONCERN: How is rising inflation impacting retirement savings?" addresses the recent increase in inflation rates in Canada and its impact on retirement savings. The consumer price index in December 2022 was up 6.3% year over year, down from a 6.8% increase in November and a 6.9% rise in October. The paper discusses how inflation can affect defined benefit plan sponsors in two ways, and how de-risking conversations have increased among pension plan sponsors, causing many to consider moving toward a plan windup. The paper also analyzes the impact of the federal government's November announcement that it would cancel real return bond auctions and how it has affected Canadian DB plan sponsors' ability to hedge against inflation. Finally, the paper discusses strategies that DB plan sponsors can adopt to minimize risk and achieve higher yields, such as diversification into private debt and alternative credit strategies.

The Research Design & Data Collection

The research paper explores how inflation and market volatility are affecting pension plan sponsors and members in Canada. The research design is not explicitly stated, but the data collection method is primarily through secondary sources. The article references data from Statistics Canada and Aon's latest pension risk tracker, along with surveys by MetLife Inc. and WTW's latest group annuity purchase index. The paper also includes comments from several experts and pension plan sponsors who discuss their experiences with rising inflation and how it is impacting their decision-making processes, asset mix, and de-risking strategies.

The Statistical Analyses

The research discusses the impact of rising inflation and market volatility on retirement savings plans. The research discusses the impact of inflation on defined benefit plan sponsors and members, including how rising interest rates have driven down the cost of liabilities, how pension plans with automatic cost-of-living increases are seeing real returns take a hit, and how actuaries may be building the possibility of a prolonged period of higher inflation into their assumptions. It also notes that Canadian DB plan sponsors ended 2022 in a strong financial position, with the aggregate funded ratio for DB plans increasing from 96.9% to 100.8% over the course of the year, with rising interest rates offsetting a 15.6% drop in pension assets. It also discusses de-risking and plan windup conversations, with many DB plan sponsors considering de-risking or moving towards a plan windup due to strong financial positions. In addition, the research notes that for DB plan sponsors not looking to wind up, it is a good time to diversify into private debt and alternative credit strategies. Finally, the research describes the federal government's decision to cancel real return bond auctions, which took away part of an already narrow market and complicated what historically has been a core allocation to any portfolio with inflation sensitivity.

The Key Findings

How rising inflation impacts retirement savings is likely to include several key findings. Firstly, it may mention that inflation hit a near 40-year high in the past year, but that it started to cool down in late 2022, following interest rate hikes by the Bank of Canada. Additionally, it may highlight that pension plan sponsors and members are facing the dual headwinds of rising inflation and market volatility, which are affecting both equity and fixed income. Furthermore, the section may point out that inflation can impact defined benefit plan sponsors in two ways, and that pension plans without automatic cost-of-living increases can benefit from rising interest rates driving down the cost of liabilities. On the other hand, plan sponsors that raise pension payouts alongside inflation are seeing their real returns take a hit. The results section may also report that several major pension funds announced significant cost-of-living increases for retirees, and that the strong financial positions of many defined benefit plan sponsors have prompted them to consider de-risking or moving towards a plan windup. Finally, the results section may mention that it is a good time for defined benefit plan sponsors not looking to wind up to diversify into private debt and alternative credit strategies such as emerging market debt, securitized debt, and asset-backed securities, among other key findings.

Conclusion

The impact of rising inflation on retirement savings plans in Canada has been significant. Defined benefit plan sponsors have had to deal with rising inflation and market volatility, while pension payouts alongside inflation are seeing their real returns take a hit. While pension plans without automatic cost-of-living increases can benefit from rising interest rates driving down the cost of liabilities, actuaries at average-earnings DB plans may have to begin taking into account the expectations of higher salaries for plan members over time. However, according to Aon's latest pension risk tracker, Canadian DB plan sponsors ended 2022 in a strong financial position. Strong financial positions have prompted many DB plan sponsors to consider de-risking or even move towards a plan windup. It's a good time for plan sponsors not looking to wind up to diversify into private debt and alternative credit strategies. Overall, the current situation is a reminder of the importance of careful planning, diversification, and risk management in retirement savings.

Reference

Rolfe, K. (2023). A GROWING CONCERN: How is rising inflation impacting retirement savings? Benefits Canada, 48(2), 12+. https://link.gale.com/apps/doc/A744045962/AONE?u=lirn17237&sid=bookmark-AONE&xid=295b2acb