Canadians should be able to hold life annuities in their tax-free savings accounts, the Canadian Life and Health Insurance Association (CLHIA) said in a pre-budget submission to Finance Minister Chrystia Freeland.
The recommendation was part of the insurance industry group’s submission ahead of the 2021 federal budget, which is expected to be delivered in the coming weeks.
CLHIA said retirement is becoming less secure for Canadians as employers move away from defined benefit pension plans. Expanded access to annuities, the association argued, would provide guaranteed income while transferring longevity risk to insurers.
The liquidity requirements for TFSAs prevent life annuities from being held in those accounts. CLHIA proposed waiving the requirement, at least at older ages, to allow Canadian seniors to hold life annuities in TFSAs.
“Canadians are using TFSAs to supplement retirement savings. These individuals should have the flexibility to secure their retirement through a guaranteed lifetime income from that plan,” the submission said.
CLHIA made the same appeal ahead of last year’s budget, which was never tabled after the outbreak of Covid-19.
The association also repeated a proposal that follows up on the 2019 federal budget.
That year, the government proposed rule changes allowing for the use of advanced life deferred annuities and variable payment life annuities (VPLAs). CLHIA said the latter measures would limit VPLAs to members of large plans, “disadvantaging those who work for small employers or save through other types of retirement plans.”
The association said the government should allow standalone VPLAs for all pool participants of registered retirement plans “to provide the broadest possible access.”
CLHIA also made recommendations regarding federal debt instruments. There’s strong demand in the insurance industry for long-term investments to match the terms of liabilities, the submission said, and a long-term federal debt instrument would help insurers.
“As the federal government looks to de-risk the large deficit financing it has taken on to respond to the Covid-19 pandemic and its economic impacts, the life and health insurance industry would see value in the establishment of a long-term federal debt instrument, particularly 20-year bonds, conditional on the government issuing sufficient amounts to establish a benchmark at that tenure and that there be sufficient liquidity on that new tenure,” the submission said.
CLHIA also addressed a lack of sustainable investment assets. The submission said Canadian life and health insurers already have more than $50 billion invested in products or assets that integrate environmental, social and governance (ESG) or sustainability factors, but that the industry “is able and wants to do more.”
The association offered to collaborate with the government to address the lack of supply for sustainable infrastructure, low-carbon electricity generation and climate transition projects. CLHIA also said it could help the government develop “clear language and definitions for the various investments and financial products that meet ESG criteria.”
In a report last week, the C.D. Howe Institute called on the feds to launch green bonds.