The implementation of variable payment life annuities in Quebec will support employee financial well-being and retirement readiness, while providing a model for other Canadian jurisdictions, says Louis-Bernard Désilets, an associate at Normandin Beaudry.
“Currently, there’s approximately $1.5 trillion in retirement savings accumulated in [registered retirement savings plans] and [defined contribution] plans in Canada, with likely more than half of that [belonging] to people [older than] age 55. In Quebec alone, this represents at least $200 billion for people older than age 55 — they need efficient tools to decumulate their retirement savings in a way that meets their needs.”
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The provincial government is currently seeking feedback on a regulatory framework to allow DC plans and voluntary retirement savings plans to implement VPLAs. According to the framework, individual plan members would be able to transfer some or all of their savings from their employer-sponsored retirement plan, group RRSP or registered retirement income fund to a VPLA.
The amount transferred will immediately be converted into lifetime income based on the interest rate and the sex-specific mortality assumption applicable to that fund.
The VPLA would be adjusted annually according to the fund’s return, which is calculated using the audited financial report. It would also be adjusted at least every three years to factor in the mortality experience of the fund’s beneficiaries, or in the event of a change to the mortality assumption.
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For employers choosing to offer a VPLA through their group retirement plan, it’s important to effectively communicate to employees about how the product will support retirement savings and financial well-being, says Désilets.
“It will be something of interest for plan members as they come to understand how it works and how it can be used as part of their retirement planning. But there’s a lot of effort that needs to go into promoting this product — employees need to perfectly understand how the [VPLA] works and how this option can fit into their decumulation strategy.”
VPLAs can also eliminate what he describes as the “pension envy problem” among employees who don’t have access to defined benefit plans, while reducing risks related to investment, longevity and cognitive decline among members.
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“It eliminates the need to make complex investment decisions or to determine the withdrawal amounts [when faced with] cognitive decline. . . . [With a VPLA] you don’t have to make those decisions anymore.”
Quebec is the first province to establish a VPLA framework and, during a time when calls for national unity dominate headlines, it could serve a rallying point for other provinces and territories looking to support retirement readiness, he adds.
“We feel that the timing could not be better to break down barriers between provinces. It’s a recurring theme currently and we feel that we have the opportunity here to build something new and with consistent rules across Canada to align on the common goal of helping Canadians manage the decumulation of their retirement savings.”
Comments on the framework will be accepted until July 12, after which the regulations will be adopted. Final modifications will then come into force on the fifteenth day following the date of publication.
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