Addressing the Risk of Outliving Savings - New Project Will Create A Practical Roadmap for Implementation Of Variable Payout Life Annuities

Concerns about Canadians outliving their retirement savings have been mounting in recent years for a variety of reasons - we're living longer than ever before, spending a longer period of time in retirement than ever before, and workplace pension coverage has been declining for decades, to name only a few.

To address this concern, a coalition of experts, seniors’ advocates and organizations came together in 2018 to ask the federal government to amend the Income Tax Act to allow for Variable Payout Life Annuities (VPLAs) - a new type of annuity that aims to provide older Canadians life-time income by pooling longevity risk. The government responded in Budget 2019.

Now, a new research project is taking steps to establish a road map for how best to structure, implement, and provide Canadians with added financial longevity protection through VPLAs. Its goal is to outline the practical issues that stakeholders in Canada should consider as they plan for implementation of Variable Payout Life Annuities (VPLAs). Interest in the VPLA concept has grown steadily ever since the federal government opened the door to new decumulation options for registered pension plans. The new project anticipates the demand for practical information as the government’s commitment turns to reality.

The research team is composed of Bonnie-Jeanne MacDonald, PhD FSA FCIA (National Institute on Ageing, Ryerson University), Barbara Sanders FSA FCIA (Simon Fraser University) and Laura Strachan FIA FCIA (Eckler Ltd.). They anticipate releasing a white paper of their findings in early 2021, published by the National Pension Hub (Global Risk Institute) in collaboration with the National Institute on Ageing (NIA). The paper is intended to serve a variety of stakeholders, including pension plan sponsors, the financial services industry, pension plan members, as well as regulators.

From the sponsor’s perspective, practical questions about establishing strategic fit, choosing between different design options, and communicating with plan members will be explored. The researchers will also look at regulatory considerations, including the types of organizations that should be allowed to offer VPLAs, potential transfers to VPLAs from other retirement vehicles, and requirements for governance and administration.

The project will draw on new insights and evidence relevant to VPLAs from recent academic and industry publications, especially in the area of tontines. In addition, a key part of the research will be a series of case studies of pension organizations who either already have a VPLA option or are contemplating adding such an option in the future.

By providing a roadmap of the practical issues (both strategic and technical) that should be considered as VPLAs are implemented, the research will allow stakeholders to make better policy and business decisions, leading to more effective take-up of these new instruments in the coming years.