The new federal budget proposed allowing new annuity options to improve the retirement income security of Canadians. Industry stakeholders are praising the measures.
The budget, released March 19, proposes allowing for two types of new annuities. The Advanced Life Deferred Annuity (ALDA) would begin as late as age 85 instead of age 71 as presently required, explains Mercer in its budget analysis.
An ALDA could be purchased from plans such as an RRSP, RRIF, DPSP, PRPP and defined contribution RPP, subject to a lifetime dollar limit of $150,000."
Variable Payment Life Annuity
The budget also proposes a Variable Payment Life Annuity (VPLA), which would be provided from PRPPs and defined contribution RPPs, explains Mercer. "Payments under a VPLA would vary based on investment performance and mortality experience of annuitants. A separate fund will need to be established under the plan to receive transfers from members’ accounts and provide VPLAs."
Mercer called the proposals "significant enhancements" in the income options for retirees. "The ALDA will allow members to defer a portion of their retirement income to a time when they need it, while the VPLA will allow them to have a lifetime stream of income through a pooled arrangement without the cost of purchasing an annuity."
Smart public policy
These budget measures were also praised by Stephen Frank, President and CEO of the Canadian Life and Health Insurance Association (CLHIA).. "Making such options more widely available is smart public policy, and we look forward to working with government to expand these options."
The CLHIA adds that the industry and other partners have been asking the government for changes to the treatment of annuities for some time.