Quebec’s incoming regulatory framework for variable payment life annuities requires additional clarity around the potential for fluctuating payouts to plan members, said the Association of Canadian Pension Management.
In a letter to the provincial government, the ACPM said while it isn’t suggesting additional regulatory measures to enhance clarity, it’s encouraging the government to issue clear guidelines to plan sponsors. In addition, the introduction of a maximum reference rate could prevent abusive product design and protect members’ interests.
Read: Quebec introducing VPLA regulatory framework
“Such a measure would help preserve the integrity and transparency of the system, while strengthening members’ confidence in the products offered. This reference rate could be linked to the expected return based on the risk profile of the plan’s investment policy, for a reasonable decumulation horizon and determined by an actuary when the fund is registered, as well as in any subsequent actuarial valuation report.”
The organization noted pension administrators could reduce volatility by using investments that aren’t traded on public markets, indirectly smoothing the market valuation of investments.
The ACPM also urged any changes to the investment policy of a VPLA fund must respect the established risk profile, which should be clearly stipulated in the investment policy, and that this risk profile can’t be modified during the fund’s existence, unless members have the option of transferring the value of their pensions to another fund.
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“It seems problematic to us that a change in investment policy, which significantly affects the desired risk profile, can be made during the lifetime of a fund, since the member has no possibility of withdrawing, even if the potential for future adjustments is significantly affected.”
While the draft regulation requires the plan text to stipulate the annual limit on fees that may be deducted from returns, the ACPM encouraged protection mechanisms in the event that fundamental provisions of the plan — notably those relating to maximum fees — are modified after a member has enrolled.
“More specifically, members should have the option of transferring the value of their pension to another fund offering a risk profile and fee level better suited to their needs and risk tolerance. If no available option adequately meets their needs, then transferring the balance to another pension vehicle should be permitted.”
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