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Enhancing the efficiency of retirement income options for older Canadians

Release Date: 09/27/2018
Staff Reference: Ronald Sanderson

Canadians face uncertainty in financing their retirement years. Actuarial tables provide expected life durations, but few Canadians actually die when the tables predict. This uncertainty creates a significant risk, and many seniors react by reducing expenditures on necessities of life for fear of outliving their money. Canadian seniors need better income options that remove this risk.

Variations in how long people live create a natural risk sharing opportunity – one that is already used in the Old Age Security program, the Canada and Quebec Pension Plans, and in workplace "defined benefit" pension plans. But with fewer Canadians having such workplace pension plans, expanding access to risk pooling through "longevity insurance" can help ensure savings in defined contribution pensions, Registered Retirement Savings Plans and Tax-Free Savings Accounts last throughout life.

CLHIA, together with the Association of Canadian Pension Management, the Canadian Association of Retired Persons, the Canadian Institute of Actuaries, Commonwealth, the National Institute for Ageing, the Pension Investment Association of Canada, and Keith Ambachtsheer, Director Emeritus of the International Centre for Pension Management, has written to federal Minister of Finance Bill Morneau and Minister of Seniors Filomena Tassi proposing three simple legislative changes that would make longevity risk pooling mechanisms available to all Canadian seniors:

  • Permitting arrangements that pool variations in investment returns and life expectancies among participants, to provide more certain incomes throughout life;
  • Allowing consumers to set aside a small portion of their retirement savings at or before retirement to provide a guaranteed income for life starting at a later time, say age 85; and
  • Letting seniors use Tax-Free Savings Accounts to provide guaranteed lifetime income in retirement.