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New Retirement Payout Options

Michelle Oram, CEBS, ISCEBS FellowProduct Owner, Guidance & Advice

October 8, 2019

Debunking retiree solutions

Agenda

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• Retiree needs and wants

• Existing options

• Variable benefits

• ALDA (Advanced Life Deferred Annuity)

• VPLA (Variable Payment Life Annuity)

• The future

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NeedsandWants

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• + Income

• - Volatility

• Lifetime

• Capital

• Estate

Existing Options

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RRIF/LIF Annuity

+ Income ▲▲

- Volatility ▲▲

Lifetime ▲▲

Capital ▲▲

Estate ▲▲

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Variable Benefits

What is Variable Benefits?Variable Benefits

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• Withdraw from RPP in retirement

• Variable benefit account

• Allowed: BC, Alberta, Saskatchewan, Manitoba,Quebec and Nova Scotia(Ontario: soon)

…vs Life IncomeFund (LIF)?

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Variable BenefitsvsLife Income Fund (LIF)

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Variable Benefits Life Income Fund (LIF)

Investment management fees (IMFs)

Same or higher than savings plans

FundsSame

FiduciaryEmployer

PaperworkSame (except beneficiary)

Minimum & maximum withdrawal

Same

Supports RRSP No Yes

Variable BenefitsvsLife Income Fund (LIF)

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Variable benefits within DC plans seem to duplicate existing options without adding significant value. They seem to be a solution in search of a problem.

Benefits Canada, “Are DC plan sponsors actually interested in variable benefits?”

“

“

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Advanced Life Deferred Annuity (ALDA)

Advanced Life Deferred Annuity(ALDA)

2019 federal budget

Annuity to start no later than age 85

Limit of 25% / $150,000

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Quiz

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ALDA could provide an annuity 7.5x larger than an immediate annuity

$2,500 (10%)

$5,000 (20%)

$10,000 (40%)

$15,000 (60%)

Male, 60 $100,000 $5,500 / year (5.5%)

ALDA to age 85 … how much income with $25,000?

The Good and the Bad • Tax deferral

• May prevent OAS clawback

• “Inexpensive” lifetime income

• Appetite for annuities

• US: $80M/quarter

What’s next?

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• Now: Proposal in the budget

• Government is conducting consultations

• Election may delay implementation

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Variable Payment Life Annuity(VPLA)

What is VPLA?Variable Payment Life Annuity(VPLA)

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• 2019 federal budget

• Pools investment and longevity risks

• Payments vary based on:

• Investment return

• Mortality experience

• Minimum of 10 annuitants

• University of British Columbia (UBC)

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Quiz

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How many (total) employees would be required to be able to form a reasonably large enough pool of annuitants in 5 years?

1,000 5,000

10,000 20,000

AssumptionsReasonable size to pool risk: 100 annuitants

% of retiree each year: 5%Retention: 40%

VPLA election: 5%

The Good and the Bad

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• Higher income than annuity

• Fiduciary risks

• No pool of pool

• Size of employer

• Costs and expertise

• Appetite for annuities

What’s next?• Now: Proposal in the budget

• Government is conducting consultations

• Tax code AND pension legislation need to be changed

• Election may delay implementation

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The Future

Overview of the Future

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RRIF/LIF Annuity Variable benefits ALDA VPLA

Income ▲▲ ▲▲ ▲

Volatility ▲▲ ▲▲ ▲▲

Lifetime ▲▲ ▲▲ ▲▲

Capital ▲▲ ▲▲

Estate ▲▲ ▲▲ ▲

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