The longevity of Canadians is shining a spotlight on sources of guaranteed retirement income. According to Statistics Canada, a person who turned 65 between 2021 and 2023 can expect to live to 85.8 years, or 21 more years. For women aged 65, this is 22.1 years longer, and for men, 19.33 years longer. This data was taken from Statistics Canada’s study entitled Life expectancy and other elements of the complete life table, single-year estimates, Canada, all provinces except Prince Edward Island.
Aside from defined benefit pension plans or individual annuities offered by insurers, sources of guaranteed income are scarce. Guaranteed withdrawal benefit (GWB) segregated funds are another option.
The main feature of these funds is that they provide a guaranteed lifetime income to the fund holder upon retirement. The deposits used to provide this retirement income can grow within the fund through investment options. Thus, the deposits will appreciate thanks to the performance of stock or bond indices, or that of balanced portfolios.
Guaranteed private income is essential to the quality of life of the retired population. Public plans such as the Canada Pension Plan (CPP), the Quebec Pension Plan (QPP), and Old Age Security (OAS) remain a safety net that primarily covers the basic needs of Canadians.
A limited offering with multiple advantages
The number of providers of GWB segregated funds has dwindled considerably over the past decade. Only three insurers still sell these funds, according to data prepared for the Insurance Portal by InsuranceINTEL, the insurance product information centre of the Insurance Journal Publishing Group. They are Empire Life, iA Financial Group and Sun Life.
Previously, this market segment included other players such as Beneva (then SSQ Insurance), Desjardins Financial Security (DFS), ivari (then Transamerica), and Manulife. For comparison, InsuranceINTEL lists 12 insurers that offer traditional segregated fund products.
GWB segregated funds allow their holders to benefit from the same features as traditional segregated fund policies. By designating beneficiaries, they allow them to quickly receive the fund’s assets, as they do not have to wait for the estate to be settled. Furthermore, the transfer of funds is exempt from estate taxes. The segregated fund can also offer protection against creditors.
GWB segregated funds also offer capital guarantees. These are 75% upon death and at the fund’s maturity. With the IAG Savings and Retirement Plan – FORLIFE Series, iA Financial Group stands out by offering a choice between a 75% and a 100% death benefit guarantee.
Growing income
The periodic amount a client can receive from a GWB fund is predetermined based on a rate the insurer applies to each deposit made into the account before withdrawals begin. Sun Life explains it this way for one of its two products, called Sun Lifetime Advantage GIF. “Each year the client defers electing income, a higher lifetime guaranteed income is available,” reads the table below. Empire Life stands out with its Class Plus 3.0 by stipulating that the percentage of the basic income payable automatically increases each year from age 55 to 80. For example, it is 2.85% at age 55, 4% at age 65, 4.9% at age 75, and 5.25% from age 80 onward.
At iA Financial Group, the income offered by the IAG Savings and Retirement Plan – FORLIFE Series will be determined based on the client’s age at the time of transfer to what the insurer calls the Income Stage. For example, the withdrawal rate will be 3.5% from age 50 to 54, 5% from age 65 to 69, and 6% from age 75 onward.
Sun Life does not specify a withdrawal rate in the information it provided to InsuranceINTEL. For Sun Lifetime Advantage GIF, it explains that the guaranteed lifetime income amount is based on the minimum income rates at the time of deposit. For Sun GIF Solutions – Income Series, it states that the guaranteed income will correspond to the amount of each deposit multiplied by the minimum income rates assigned to each deposit.
Target market
A search of the InsuranceINTEL database reveals the markets targeted by insurers in the GWB segregated fund niche. iA Financial Group offers the most detailed information in this regard. It explains that the series is primarily aimed at clients aged 50 to 75 who are looking to guarantee their retirement income level or who are seeking immediate, stable, and guaranteed retirement income for life.
The insurer specifies that the benefits of the FORLIFE Series will be of particular interest to four client segments: clients without a pension plan; those holding guaranteed-rate investment certificates; those holding mutual funds who are concerned about market risks as they approach retirement; and those holding segregated funds who appreciate the benefits of guarantees.
For its part, Sun Life says it targets the Sun Lifetime Advantage GIF at individuals aged 55 to 70 and clients who will retire in five years or more. With Sun GIF Solutions – Income Series, the insurer adds that it is targeting people aged 55 to 75, and clients who are preparing for or already retired.