Sun Life Financial Inc. (TSX:SLF) has introduced an innovative solution designed to lessen life expectancy risk for companies that offer defined benefit (DB) pension plans to employees.

Longevity insurance provides plan sponsors with protection from the extra pension costs that arise if their plan members live longer than expected — something that is a growing phenomenon.

“From a company perspective, longevity insurance reduces cash and earnings volatility, allowing management to focus its time and attention on running its core business,” says Brent Simmons, senior managing director, defined benefit solutions, group retirement services, Sun Life Financial Canada. “From a public policy and pensioner perspective, risk is transferred to a highly regulated insurance company, so plan members receive additional protection for their pensions.”

“As Canadians live longer due to advances in medicine and healthier living, many people can expect 30 or more years in retirement, making it more challenging for defined benefit plan sponsors to predict life expectancy,” Simmons explains.

“A miscalculation of longevity risk by a plan sponsor can be costly, resulting in higher pension payout levels than what a company or fund originally planned,” he says.

The introduction of longevity insurance completes a full suite of innovative products and services offered by Sun Life to de-risk pension plans for employers. Other solutions include annuity buy-outs, annuity buy-ins and customized liability-driven investment (LDI) portfolios.

Longevity insurance is issued by Sun Life Assurance Company of Canada.