A Smarter Way to Turn Retirement Savings into Lifetime Income

From: René Beaudry 
To:  Retirement decumulation watchers
Date: March 26, 2026 
Re: A Smarter Way to Turn Retirement Savings into Lifetime Income

Canada’s retirement system has long been admired for its stability, but it is increasingly showing signs of strain. While public programs such as the Canada Pension Plan and Old Age Security provide a foundation, the private retirement landscape has changed dramatically over the past generation. 

Traditional defined benefit pensions – once the gold standard for retirement security – have become rare in the private sector. In their place, defined contribution plans and individual savings vehicles such as RRSPs have grown rapidly. 

This shift has placed a new burden on retirees: Not only must they save for retirement, but they must also figure out how to turn those savings into a reliable income for the rest of their lives. For many Canadians, that second challenge is proving even more difficult than the first. 

The numbers illustrate the scale of the issue. Canadians over age 55 now have well over a trillion dollars in retirement savings accumulated in RRSPs and defined contribution plans. Yet the options available to convert these savings into lifetime income remain limited and often inadequate. 

Most retirees today rely on Registered Retirement Income Funds (RRIFs) or similar withdrawal strategies. While flexible, these arrangements require individuals to manage investment risk, longevity risk, and withdrawal decisions on their own. Retirees must guess how long they will live, determine how how much to withdraw each year, and navigate volatile financial markets – all while worrying about the possibility of outliving their savings. 

The result is predictable: Many retirees underspend in fear of running out of money. Others withdraw too much and face financial stress later in life. Neither outcome represents an efficient or reassuring retirement system. 

There is, however, a promising alternative emerging: the concept of a “dynamic pension.” This works by pooling retirees’ savings into a dedicated fund that immediately converts contributions into lifetime income. Unlike traditional annuities, payments are not fixed. Instead, they adjust over time based on investment performance and the mortality experience of the group. If investment returns exceed expectations or mortality experience is favourable, payments rise. If experience is weaker, payments may decline modestly. 

This structure offers several advantages. First and foremost, it restores one of the key strengths of defined benefit pensions: Longevity protection. Members receive income for life, allowing them to spend more without worrying they outlive their savings. 

Second, pooling risks among many retirees produces better outcomes than individuals managing risks alone. When retirees share investment and longevity risks collectively, the system can deliver higher sustainable income than most individuals could safely withdraw on their own. 

Third, dynamic pensions dramatically simplify decision-making for retirees. Instead of managing portfolios, calculating withdrawal rates, and worrying about market fluctuations, individuals simply receive a pension payment that adjusts automatically based on the fund’s experience. 

This simplicity is not trivial. As people age, financial decision-making can become more difficult. A system that removes complex investment decisions can provide both security and peace of mind. 

The model also has advantages for governments. Because the pension structure encourages retirees to draw income earlier and more steadily, tax-deferred retirement savings are converted into taxable income more quickly. This can accelerate government tax revenues at a time when public spending pressures – particularly related to population aging – are rising. 

Importantly, dynamic pensions can be administered efficiently. A provincial-level pension fund or a specialized pension service organization could manage investments, administration, and oversight.  

The model is not purely theoretical. Variations of dynamic pension arrangements already exist. The University of British Columbia Faculty Pension Plan, for example, has demonstrated that collective decumulation approaches can provide stable and attractive retirement income while maintaining flexibility. 

Quebec has recently taken an important step in this direction. New regulations now allow certain retirement savings vehicles to offer variable payment life annuity funds, opening the door to more flexible lifetime income products. These developments could serve as a blueprint for broader adoption across Canada. 

Of course, dynamic pensions are not a silver bullet. Careful design is essential. Transparency about how benefits are adjusted must be clear. Governance and oversight must be strong to maintain public trust. Communication with retirees will also be critical so that participants understand both the benefits and the potential variability of payments. But these challenges are manageable – and far less daunting than the risks retirees currently face when left to navigate retirement income decisions alone. 

A major challenge for Canada’s retirement system is to ensure that the massive pool of retirement savings accumulated in defined contribution plans can be transformed into reliable lifetime income. Dynamic pensions offer a practical and scalable way to achieve that goal. With thoughtful implementation, dynamic pensions may emerge as one of the defining retirement policy innovations in years to come.  

René Beaudry, a past member of the C.D. Howe Institute Pension Policy Council, is an actuary and total rewards consultant. He is the cofounder of Normandin Beaudry, which employs close to 400 professionals in Québec City, Montréal and Toronto. 

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The views expressed here are those of the author. The C.D. Howe Institute does not take corporate positions on policy matters.