Quebec’s pending implementation of variable payment life annuities would benefit more from a principles-based approach rather than a prescriptive framework, said the Canadian Institute of Actuaries.
In an open letter to the provincial government, the CIA said such an approach would allow for a more flexible and effective rollout and would encourage innovation while continuing to protect plan members.
Read: Quebec introducing VPLA regulatory framework
“We are concerned that the current requirements particularly with regard to annual adjustments, communication, division in case of divorce and plan windup could give rise to significant costs for pension plans that implement [VPLAs] as well as for financial institutions. It is essential, therefore, to ensure that these requirements do not impede members’ access to a VPLA.”
The CIA also suggested the government analyze the effects of a supervised withdrawal option for members in certain circumstances — such as fee modification, change in investment policy or the product’s inadequacy — within a short period following the initial transfer.
“Such a well-defined mechanism would help meet members’ evolving needs while limiting adverse selection risks. This would also help make the product more appealing to undecided members.”
Other measures fostering administrative flexibility could also be considered, including performance-geared pension adjustments once every three years versus annually, coinciding with the adjustment required for mortality purposes, the letter said.
Read: Quebec VPLA framework requires more clarity around payout fluctuations: ACPM
The CIA also noted the maximum death benefit allowed under the draft regulation doesn’t allow for mortality risk pooling. “We suggest that this maximum death benefit be reviewed, for instance, by requiring it to correspond to the value of the transferred amounts minus the amounts paid, without interest. Cases where a negative return on the fund would result in a death benefit higher than transferred amount with interest are unlikely and are thus exceptions.”
It also found the proposed regulatory framework limits the ability of plan sponsors to effectively mitigate the interest rate risk and instead encouraged the government to consider an adaptable regulatory framework wherein it would be possible to manage this volatility.
The letter also noted the CIA’s actuarial standards board will form a task force charged with analyzing the draft regulation concerning VPLAs and their interaction with Canadian actuarial standards.
Read: VPLAs, target-benefit pension legislation among CIA’s 2025 priorities