In doing so, it joins Guardian Capital’s Glidepath and the Purpose Longevity Fund, among others. Even so, Sun Life describes MyRetirementIncome as “a first of its kind in Canada” that “fills a gap in our industry in Canada.” It also resembles asset allocation ETFs (exchange traded funds), like Vanguard’s VRIF (Vanguard Retirement Income ETF Portfolio).
There appears to be a market in Canada for these kinds of products, despite tepid initial sales of some of the above-named pioneers. In Sun Life’s press release, it says that 5 million Canadians are “turning 65 this decade,” so there’s “growing demand for retirement solutions that help Canadian retirees transition from saving to drawing income.”
Some cynics might opine that these are as much a solution for workplace pension managers to their own problem of retaining client assets accumulated during their clients’ wealth-building days.
Among the benefits Sun Life lists are that it turns savings into regular income. “Clients will receive regular payments delivered directly to a bank account, similar to a paycheque.” It’s flexible, providing full access to client account balances: “Money can be withdrawn or added at any time, without fees or penalties.”
Despite a significant fixed-income component, it also provides opportunity for growth, with savings “invested in a well-diversified portfolio that is specifically designed for individuals in retirement, properly balancing risk and return to generate stable investment returns.”
Sun Life deploys its pre-existing multimanager Granite Moderate Retirement Fund as the base for MyRetirementIncome. It taps 16 global specialized managers for a similar number of asset classes; apart from the usual stocks and bonds, they include Emerging Market Debt, Liquid Real Assets, Direct Infrastructure, Liquid Alternatives and Direct Real Estate. Managers include: BlackRock Asset Management, Lazard Asset Management, Phillips, Hager & North, RBC Global Asset Management and its very own Sun Life Capital Management.
Well-diversified segregated fund structure
Rona Birenbaum, founder of Toronto-based firm Caring for Clients, says the Sun Life offering is a “well-diversified portfolio” in a group segregated fund structure [similar to a mutual fund] but it is not an insurance product or annuity. That means its returns and payment levels are not guaranteed, as with annuities and insurance policies.
Still, this Sun Life product can take away some headaches for those approaching or in the decumulation stage. It takes care of rebalancing and annual calculations of target draws, Birenbaum says. That’s fine, she says, “if you’re looking for someone else to make all the major decisions on product structure and how much you can afford to spend or withdraw.”
A Canadian retiree’s main decision with this Sun Life product is the age they want the funds to last until (the maturity age). They can choose from 85, 90, 95 or 100 (or select a few with a combination of ages); but they can also start drawing down as early as age 50. Sun Life recalculates the client payments annually, at the start of each year, based on the account’s balance. That has the firm looking at the total amount invested, payment frequency, number of years remaining before the selected maturity age, estimated annual rate of return (expected return is 5.5% but a conservative 4.5% rate is used in the calculations) and any annual applicable regulatory minimums and maximums.
Birenbaum says holders of MyRetirementIncome can arrange transfers to their bank accounts anywhere from biweekly to annually. While the payment amount isn’t guaranteed, they can expect what Sun Life calls a “steady income” to maturity age, so the payment isn’t expected to change much from year to year. If the client’s circumstances change, they can alter the maturity date or payment frequency at any time. While not available inside registered retirement savings plans (RRSPs), most other account types are accommodated, including registered retirement income funds (RRIFs), life income funds (LIFs), tax-free savings accounts (TFSAs) and open (taxable) accounts.
Compare the best RRSP rates in Canada
Emphasis on simplicity and flexibility
In a telephone interview, Eric Monteiro, Sun Life’s senior vice president of group retirement services, said, in MyRetirementIncome’s initial implementation, most investments will be in RRIFs. He expects that many will use it as one portion of a retirement portfolio, although some may use it 100%. Initial feedback from Canadian advisors, consultants and plan sponsors has been positive, he says, especially about its flexibility and consistency.
As said above, unlike life annuities, the return is not guaranteed, but Monteiro says “that’s the only question mark.” Sun Life looked at the competitive landscape and decided to focus on simplicity and flexibility, “precisely because these others did not take off as expected.” The all-in fee management expense ratio (MER) is 2.09% for up to $300,000 in assets, but then it falls to 1.58% beyond that. Monteiro says the fee is “in line with other actively managed products.”
Birenbaum lists the pros to be simplicity and accessibility, with limited input needed from clients, who “simply decide the age to which” they want funds to last. The residual balance isn’t lost at death but passes onto a named beneficiary or estate. Every year, the target withdrawal amount is calculated based on current market value and time to life expectancy, so drawdowns can be as sustainable as possible. This is helpful if the investor becomes unable to competently manage investments in old age and doesn’t have a trusted power of attorney to assist them.
As for cons, Birenbaum says that it’s currently available only to existing Sun Life Group Retirement Plan members. “A single fund may not be optimal for such a huge range of client needs, risk tolerance and time horizons.” In her experience, “clients tend to underestimate life expectancy” leaving them exposed to longevity risk. To her, Sun Life’s approach seems overly simplistic: you “can’t replace a comprehensive financial plan in terms of estimating sustainable level of annual draws with this product.”
In short, there is “a high cost for Sun Life doing a bit of math on behalf of clients… This is a way for Sun Life to retain group RRSP savings when their customers retire … to put small accounts on automatic pilot supported by a call centre, and ultimately, a chatbot. For a retiree with no other investments, it’s a simple way to initiate a retirement income.”
However, “anyone with a great wealth advisor who provides planning as well as investment management can do better than this product,” Birenbaum says. “For those without advisors, a simple low-cost balanced fund or ETF in a discount brokerage will save the client more than 1% a year in fees in exchange for doing a little annual math.”