The Canadian Life and Health Insurance Association Inc. (CLHIA) is asking the federal government to consider making changes that would allow Canadians more options to fund guaranteed life income streams in the form of annuities as part of its 2018 federal budget submission, released on Wednesday.
CLHIA argues in its submission that Canadians will be entering retirement increasingly without the benefit of a defined-benefit pension plan and will have to rely solely on government-run programs. This will expose them to longevity risk and the risk associated from a low-yield environment.
“While the recently adopted expansion of Canada Pension Plan will ultimately improve guaranteed lifetime income payments to retirees, the effects of that change will not be realized for decades,” CLHIA argues in its submission paper. “For many Canadian retirees, there’s an increasing need to convert some or all of the savings accumulated in their defined-contribution pensions, RRSPs, RRIFs, PRPPs, and TFSAs into guaranteed lifetime income streams.”
CLHIA is asking that the government consider the following measures:
> Allowing consumers to use part of their tax-deferred savings — such as those in an RRSP or RRIF — prior to retirement age to provide a guaranteed income starting later in retirement that delivers longevity protection.
“A holder of a RRIF might choose to purchase laddered annuities within that plan to increase guaranteed lifetime income commencing at age 80 or later,” CLHIA argues.
> Allowing Canadians to waive liquidity rights in a TFSA to permit life annuities to be held within TFSAs. Such a waiver would not be needed until a TFSA holder elects a guaranteed income (at age 55 or later), preserving liquidity until then, CLHIA recommends. “Consumers may want to exchange TFSA liquidity and residual value on death for higher guaranteed lifetime incomes.”
> Allowing gradual annuity purchases prior to the start of retirement, even though income payments from the annuities will not start until later in retirement. Currently, tax and pension law does not appear to allow the laddering of deferred annuity purchase over several years, CLHIA notes.
“These options would allow individuals within tax-advantaged savings and retirement plans to ‘lock in’ guaranteed income streams at opportune times while adding no cost to the tax system, since those savings are already exempt from tax reporting until actually paid out of such plans,” CLHIA states.
In addition to the recommendations related to retirement, CLHIA is also asking the government in the budget recommendations paper to reduce or eliminate capital taxes on financial services institutions; encourage private sector investment in the government’s infrastructure plans; and further Canada’s international trade and corporate tax competitiveness.
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