Longer living Canadians should have the option of pure longevity insurance and the government should facilitate Canadian insurers’ ability to offer it, according to a new report from the C.D. Howe Institute.
As baby boomers are hurtling towards retirement, and many have been saving in capital accumulation plans, government policies should focus on how to effectively draw down those savings, noted the report’s author Don Ezra. A key part of making sure people have financially successful retirements is the option for an income stream that kicks in later in life through longevity insurance, he said.
“Government tax policies are actually hindering the provision of longevity insurance,” said Ezra, in a press release. “Policy needs to shift, and shift quickly, to make a standalone longevity insurance market a reality.”
Ezra stressed that the insurance must be standalone, an option that isn’t currently offered by Canadian insurers, for reasons relating to individual taxation. It’s available in bundles of other financial products, but Ezra said creating an environment where a solo option is possible would make the contracts cheaper and subsequently more appealing to consumers.
The report recommended that policy-makers change the relevant tax rules to make it possible for insurers to bring about these innovations. As well, it suggested the government promotes retirement planning education with respect to longevity risk protection, and noted the terminology around this option should shift towards guaranteed lifetime income as opposed to using the word annuity.
Further down the road, CAPs such as defined contribution plans should be required by the government to offer longevity insurance for voluntary member purchase at retirement, the report suggested. It also said policy-makers should work to ensure adequate solvency rules for the products, protecting both consumers and the industry, as well as discouraging over-aggressive pricing, with an eye towards fairness for the insurers.