Beautiful caucasian elderly couple in the park in autumn

Regardless of who’s in power following the Oct. 21 federal election, it may be some time before new annuities introduced in the Liberal government’s 2019 budget become available for clients.

The comment period for draft legislation that includes tax changes to allow for advanced deferred life annuities (ALDAs) and variable payment life annuities (VPLAs) ended Oct. 7.

Even if the new government reconvenes Parliament soon after the Oct. 21 vote, it would need to introduce and pass legislation before implementing the annuities on Jan. 1, 2020, as originally proposed.

Ron Sanderson, director of policyholder taxation and pensions at the Canadian Life and Health Insurance Association (CLHIA) in Toronto, said there’s not enough time to get legislation through Parliament and write regulations to allow institutions to develop products for next year.

“It’s going to take some time before suppliers know what the rules of the game are going to be. And then, even if we’ve already done some legwork in terms of product design, you have to get out there and educate advisors and educate consumers. That’s going to take some time, too,” he said in an interview.

“Even if, by some miracle, the tax legislation was in effect by Jan. 1 of next year, I don’t think all that other ancillary stuff will be.”

There’s also the possibility of a ministerial change in the finance or seniors portfolios, with briefings required on the files, Sanderson said, not to mention a potential change in government.

The Conservative Party did not respond when asked whether it would implement the ALDA proposal.

An NDP spokesperson said the party “believes allowing for more flexibility on withdrawals from registered retirement income funds (RRIFs) by raising the age threshold for minimum withdrawals or mandatory withdrawals make sense.”

However, the spokesperson added: “It’s important to note that this measure will only help those who have the means to own such wealth instruments.”

A Green Party spokesperson, when asked about ALDAs, said the party is focused on providing a universal guaranteed income, as well as increasing the Canada Pension Plan to cover 50% of income.

Sanderson said both ALDAs and VPLAs would provide flexibility in retirement.

“I don’t see anyone shutting down the idea,” he said. “The question is how might they tweak it or tailor it.”

Working on VPLA proposal

The CLHIA submitted comments to Finance as part of the legislative consultation that ended this week. Sanderson said the organization was more focused on VPLAs than ALDAs. There may be a narrower market for the latter, he said.

“We see a lot of people who are having trouble covering their expenses shortly after retirement or in mid-retirement. They may not be thinking about long-term retirement [or] advanced-age issues,” he said.

ALDAs, as proposed, could be purchased under RRSPs and RRIFs (as well as deferred profit sharing plans, pooled registered pension plans and defined contribution plans) with guaranteed payments deferred until up to age 85 — a substantial jump from age 71, when annuities purchased with registered funds generally begin. A purchase cap was set at 25% of the source plan, to a maximum of $150,000.

The VPLA proposal limited the annuities to pooled registered pension plans (PRPPs) and defined contribution (DC) plans. Sanderson said he hopes the government will be willing to expand the VPLA proposal to RRSPs, RRIFs and, ultimately, TFSAs, rather than requiring them to be wrapped in a pension.

This could allow banks, fund companies and potentially other regulated entities — as well as insurers — to offer them.

“There is a sense that the VPLA as proposed by Finance is much narrower than we think is necessary in order to provide equity of access and cost efficiency for Canadians,” he said.

Sanderson positioned the VPLA as potentially filling a gap between the RRIF and a traditional life annuity: avoiding both the former’s drawdown and investment risk, and the latter’s cost of a guaranteed benefit — as well as the loss of flexibility and control.

The product would pool investment and longevity risk and provide “what is essentially an annuity,” Sanderson said, except the amount can vary (up and down) based on the pool’s investment experience and mortality.

“You’re self-insuring, but rather than doing it individually, you’re doing it across the group,” he said. The result should be more cost effective than buying a life annuity for clients “who don’t need or want that absolute, iron-clad guarantee.”

Under the current proposal, RRSP investors could potentially move money into PRPPs in order to access the VPLA, but Sanderson said that’s “probably not practical given there aren’t a lot of providers of PRPPs.” Clients may also be reluctant to bring non-pension money into a pension regime, he said.