The Longevity Pension Fund’s announcement set off a flurry of responses, with a mixture of pleasure, curiosity, confusion, and outright contempt and dismissal.
The fund makes use of an fascinating and modern construction. For a backgrounder on the providing, you would possibly begin with this excellent 2018 put up on MoneySense from Jonathan Chevreau: Why Ottawa must push for tontine-like annuities.
From that put up, referencing a research performed by retirement professional and educational, Moshe Milevsky says…
“Whereas a tontine revival may make sense all over the world—the pension and longevity developments are virtually common—they make specific sense in Canada. The authors state they “consider that Canada has a dearth of merchandise for hedging private threat, in comparison with the U.S. market.’ They know of no Canadian insurance coverage firm that gives a real deferred revenue annuity (DIA or ALDA), nor do they provide a variable revenue annuity or equity-indexed annuities with dwelling advantages: all out there within the U.S. The closest we now have are segregated funds, they usually actually aren’t that nice so far as guaranteeing lifetime revenue.”
All stated, the Longevity Pension Fund is not a tontine (name it a contemporary tontine if that makes you cheerful); it’s extra like a pension mannequin that could be a mutual fund. Whereas there are underlying funding belongings, the key sauce is the mortality credit. From the put up on my website, and a proof provided by Objective CEO Som Seif…
“It’s based mostly on what they name Longevity Threat Pooling. The distinction between the required return on the fund (web 3.5%) and the revenue paid to traders (6.15%+) is as a result of when individuals purchase, they get their revenue, however as some individuals redeem/cross away earlier, they depart behind within the pool their returns on their invested capital (they get their unpaid capital paid out upon dying or redemption). These returns left behind cut back the full return required to offer the revenue stream for all traders.”
Keep tuned. Jonathan Chevreau shall be again subsequent week with a devoted put up on this new retirement providing.
Whereas there’s extra analysis to do, I’m within the camp that this pension/mutual fund has the potential to be a game-changer for Canadian retirees.