The Pension Investments Association of Canada is calling on the British Columbia government to refrain from setting limits on the type of entities that can offer variable life benefits.
In an open letter, the association said a competitive landscape that includes a broad scope of service providers, including registered pension plans, would be beneficial for retirees, noting it’s important to view variable life benefits under the province’s Pensions and Benefits Standard Act and those under its Pooled Registered Pensions Plan Act as part of the same retirement ecosystem.
“This will permit transfers from registered pension plans to PRPPs, since the most scalable
variable life benefit implementations are likely to come in a form of decumulation-only PRPPs,” said the PIAC.
It also noted the province’s defined contribution provision definition limits the decumulation of additional voluntary contributions through variable benefits, such as registered retirement income funds and lifetime income-like payments, and additional voluntary contribution accounts. The amendments introduced under the federal Pensions and Benefits Standard Act allow for the establishment of a variable life benefit within a pension fund, enabling plan members to transfer amounts from their DC provision and additional voluntary contribution accounts to the variable life benefit fund, said the association.
The PIAC recommended the province allow additional voluntary contributions to be used for both variable benefits and variable life benefits by including it as a part of the DC provision definition, in conjunction with recent changes to the federal Pensions and Benefits Standard Act. Alternatively, it suggested B.C.’s Pensions and Benefits Standard Act be amended to include a provision outlining that if the plan provides variable benefits or variable life benefits, then benefits for which additional voluntary contributions may be used must also include variable benefits and variable life benefits.
In addition, the association recommended the B.C. government consider what rules should govern withdrawals from a variable life benefit. “While we believe that locked-in capital will be a design feature that variable life benefit sponsors may choose, the ability to withdraw at least some capital may be a feature that plan members value — similar to early death payouts commonly found in life annuities — and if such a feature is offered in an actuarially sound manner, it should not be ruled out by regulation.”
With regard to entering into a variable life benefit prior to retirement, the PIAC advised the regulator to let the market develop naturally, as it expects plan sponsors choosing to offer a variable life benefit would likely make the option available only at retirement to ensure employees have a complete perspective on their financial situation at the time of making the decision, while others may provide the option, along with education, for their employees to build their retirement income plan over time.
While spousal consent should be required for members, an alternative to this process is to define variable life benefits under registered pension plan in reference to joint and survivor benefits, in which case no secondary spousal consent would be required, said the PIAC, noting valuation of the variable life benefit fund can be performed on a joint and survivor basis, as it is with DB plans. As well, it also recommended that upcoming revisions to the B.C. Family Law regulation include a provision for variable life benefits to be divided in a method similar to DC provisions, as a proportion of the total account balance used to establish the variable life benefit and that the options available to the former spouse be consistent with the existing division of a lifetime pension in pay.
As well, existing provisions around standard of care should apply to variable life benefits and a portability option allowing a variable life benefit transfer to another variable life benefit vehicle should be made available, said the PIAC.