Wheat Board cuts risk with annuity

The Canadian Wheat Board (CWB) has signed a deal with Sun Life Financial to purchase a $150-million annuity policy that transfers investment and longevity risk from its DB plan to the insurer.

“The deal is a win-win for the Canadian Wheat Board and its plan members,” says Andrea Carlson, vice-president, corporate finance and strategy, with the CWB. “Sun Life is now managing all of the market-related risks of our pension plan through an annuity buy-in, providing an indexed solution that others in the market told us couldn’t be done.”

The agreement is unique in the Canadian market because it involves pension income that grows with inflation as well as the annuity buy-in solution.

An annuity buy-in is an investment that a pension plan makes to transfer investment and longevity risk to an insurance company, without any impact on plan members’ pensions. It increases benefit security by allowing the pension plan to better match its assets with the pension promises it has made.

“It is a game-changing transaction for our industry. Our agreement is designed to provide long-term security to the Canadian Wheat Board’s pension plan members,” says Brent Simmons, senior managing director, DB solutions, with Sun Life.

The CWB deal is an inflation-linked promise, which means the commitments of the pension plan increase with inflation and Sun Life has to find assets to back the annuity that move in the same direction.

The Office of the Superintendent of Financial Institutions issued a comment last year on buy-in annuities, saying that this type of investment is allowed under the terms of the plan.

This deal is a relatively small transaction, but Simmons says the Canadian marketplace could still see a $1-billion transaction within the year. Sun Life is in talks with organizations looking to tackle billion-dollar plans.

In the U.S., both General Motors and Verizon struck similar deals with Prudential Financial last year.

CRA medical and disability rules change

The Canada Revenue Agency (CRA) has issued new Income Tax Folios to replace the former Interpretation Bulletins used to explain how to interpret tax law.

In late March, the CRA announced that Interpretation Bulletin IT-519R2, Medical Expense and Disability Tax Credits and Attendant Care Expense Deduction, has been cancelled. The government body also opened a consultation period on the topic at that time.

In early July, it quietly released three of seven new folios: S1-F1-C1: Medical Expense Tax Credit; S1-F1-C2: Disability Tax Credit; and S1-F1-C3: Disability Supports Deduction.

The folios will be organized by broad categories. Each folio within a series will be subdivided into topic-specific chapters to better enable people to locate information.

For more information, go to cra-arc.gc.ca.

Big investors go mining

The CPP Investment Board (CPPIB) and the Caisse de dépôt et placement du Québec are looking to expand their interests in mining.

It’s been rumoured that the institutional investors are seeking partners for separate bids to acquire part of Iron Ore Co. of Canada. The purchase would scoop up Rio Tinto’s 59% interest. The stake is estimated to be worth approximately US$4 billion (C$4.2 billion).

The CPPIB is working with U.S. private equity firm Apollo Global Management LLC, while the Caisse has held discussions with possible partners.

This is not surprising for either. The CPPIB has a team dedicated to investing in natural resources. And, in June, the Caisse announced it would create a fund to invest in Quebec’s natural resources.

Great-West closes Irish Life acquisition

Great-West Lifeco recently completed its previously announced €1.3-billion (C$1.7-billion) acquisition of Irish Life Group, Ireland’s biggest life and pensions company.

Great-West, an international financial services holding firm, carried out the transaction through its indirect wholly owned subsidiary in Ireland, Canada Life.

Completing this transaction is a great milestone for Great-West’s companies in Ireland, says Paul Mahon, Great-West president and CEO.

“We are now the leading provider of life insurance, pensions and investment management in Ireland, consistent with Great-West Lifeco’s global business strategy of developing significant market positions in the sectors where the company participates,” Mahon explains.

“Combining the businesses of Irish Life and Canada Life in Ireland under the Irish Life brand will help ensure that Irish Life remains the leading brand in the Irish financial services market,” he adds.

While closing the acquisition, Great-West also announced a new CEO for Irish Life: Bill Kyle, executive vice-president, wealth management, at Great-West, where he has worked for 34 years. Kyle recently led the integration of the company’s Canadian group and individual wealth businesses, which serve more than two million policyholders with more than $88 billion in assets.

Delayed gratification

Do you have employees looking to delay their retirement? Canada’s seniors now have the option to delay receiving their old age security (OAS) for up to five years past the age of eligibility.

“People today are taking many different paths to retirement, and some seniors are choosing to work longer,” said Diane Finley, then minister of Human Resources and Skills Development. “Canadians now have the option to voluntarily defer their OAS pension for up to five years in exchange for a higher monthly amount.”

For every month that the receipt of OAS is delayed, seniors will receive an increased monthly pension of 0.6% per month, up to a maximum of 36% at age 70.

The federal government announced the new voluntary deferral option—which came into effect in early July—in the 2012 budget. In that budget, the government also announced it would increase the eligibility age for OAS to 67 from 65 gradually starting in 2023, with full implementation by 2029.


DC Investment Forum
September 26–27, 2013
Thompson Hotel, Toronto

Levels of public confidence and understanding of DC plans are generally low, yet plan members are becoming wise to investment volatility and are demanding strong returns based on de-risking options. Plan sponsors and DC investors are looking for more effective sources of return and more efficient ways to help plan members appropriately bear the risk of their retirement savings plans.

At this year’s forum, Avery Shenfeld, managing director and chief economist with CIBC World Markets, will share his global outlook for DC investors. Other sessions include fixed income investing in a low-rate environment, global market strategies and strategies for managing portfolio volatility.

Get more information at BenefitsCanada.com.

Product corner

Medavie Blue Cross now offers a free online tool that allows members to assess their health risks and develop personalized health action plans. My Good Health identifies members’ risk of chronic disease and teaches them what actions they can take to avoid future illness. Reporting capabilities for employers include identifying leading risk factors among employees, levels of stress and particular health issues impacting overall productivity.

CI Investments has launched the G5|20 Series, a new mutual fund that aims to provide cash flow, growth potential and protection from market downturns. The fund has a 25-year lifespan. It has a diversified portfolio of income and growth investments and is actively managed. After a five-year accumulation phase, the fund will pay out an annual cash flow for the following 20 years. This will be equal to 5% of an investor’s initial investment or to the fund’s market value at the five-year anniversary date—whichever is highest.

This month in numbers

the funded status of Canadian plans. This is six percentage points higher than the average worldwide plan.
— DBRS study Pension Plans: The 401 Slowdown

$250,000,000: the size of the fund created by the Caisse de dépôt et placement du Québec to invest in natural resources development-stage companies in Quebec

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