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Apr 29, 2021

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08:00 min read

Canada joins the global shift to tontine pensions.

Following hard on the heels of the OECD recommending that tontine pensions are made mandatory, OECD member Canada is reshaping its pension system. Their planned new tontine pension will be called a Variable Payment Life Annuity, conveniently shortened to VPLA. The VPLA tontine will do exactly what it says on the tin and provide a payment stream that varies based on the performance of the underlying investments and the rate at which members pass away.

Amending the local legislation will take a few years but will potentially remake the private sector pension landscape in Canada.

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Following hard on the heels of the OECD recommendation in February that tontine pensions are made mandatory, OECD member Canada is already reshaping its pension system.

Their planned new tontine pension will be called a Variable Payment Life Annuity. The VPLA tontine will do exactly what it says on the tin and provide a payment stream that varies based on the performance of the underlying investments and the rate at which members pass away.

Announced by the government in its 2021 budget, this new variant is of the welcome kind which will finally restore the advantages of tontines to Canadian retirees making them happier and more financially secure in their advanced years.

True to the nature of it's tontine design, the VPLA tontine will provide payments that vary based upon the longevity of the members as well as on the performance of the underlying investments.

Crucially for Canadian retirees, the VPLA tontine payments are expected to outstrip the income available from existing pension products and is getting industry experts excited.

“The potential income gain from VPLAs is remarkable” according to Moshe Milevsky, the Professor of Finance at the Schulich School of Business at York University whom knows more than most people on the planet the advantages of tontines.

“You can expect to get two to three percentage points in higher returns while you’re alive than you can with equivalent investment products without mortality pooling.”

As with a regular Canadian pension, the VPLA tontine will benefit from professionally managed underlying investments and low fees similarly to our upcoming new Pan-European Tontine PEPPs. The stable returns & low fees when combined combined the inevitabe income gains generated by mortality credits will redefine the lifetime income industry.

At TontineTrust, we love to stress how tontine pensions can bring peace of mind as well as optimism about the future to retirees who were previously worried about running out of money in old age. Canadian experts agree too.

“(People) don’t have a pot of money where they’re trying to think ‘how am I going to spend this over my retirement?’”

says Bonnie-Jeanne MacDonald, an actuary, and director of financial security research, National Institute on Ageing at Ryerson University.

“They can just set out a yearly budget and adjust a little (for the income fluctuations) if they need to.”

A robust and sustainable tontine lifetime income pension cannot come soon enough for rapidly aging Canada where 20% of its population will be 65 or over in 2026. Fear not Canadian retirees, your tontine pensions will be along soon, perhaps even sooner than you realise.

To read the full Toronto Star article, click here.

Following hard on the heels of the OECD recommending that tontine pensions are made mandatory, OECD member Canada is reshaping its pension system.

Their planned new tontine pension does what it says on wa Variable payment life annuity, convill be called a Variable Payment Life Annuity, conveniently shortened to VPLA. The VPLA tontine will do exactly what it says on the tin and provide a payment stream that varies based on the performance of the underlying investments and the rate at which members pass away.

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© 2024 Tontine Trust Advisors LLC ('Tontine Trust'). All rights reserved.

Tontine Trust is a fintech enabling consumer-friendly lifetime income retirement products such as the state of the art TontineIRA™ via banks, chartered trust companies and credit unions (each a ‘Bank’).

Banking, trustee and fiduciary services in the US are provided by partner Banks which are regulated in the US to act as fiduciaries on behalf of US Tontine IRA™ accountholders (‘members’).

Tontine Trust provides and operates the TontineIRA™ administration and record-keeping platform on behalf of and under the supervision of the Banks.

Tontine Trust is not a Bank or a trust company and does not provide banking & fiduciary services other than certain administrative services in a ministerial capacity as the Trust Advisors to the Tontine IRA™s.

No information on this website or the platforms provided by Tontine Trust should be taken as constituting individual advice to you. The information is informational and of general guidance only. Tontine Trust does not provide investment management services, financial advice, banking or fiduciary services.

The choices you make or do not make around the investment of your retirement account are your own responsibility.‍ Neither Tontine Trust nor the Banks can be held responsible for any financial loss arising from your retirement choices or lack of them.

The amounts and duration of the lifetime income from the Tontine IRA™ are indicative only. By design, neither the amounts nor the duration of retirement income payments from a tontine plan are fixed or guaranteed.

Based upon many years of research and development, the TontineIRA™ platform displays reasonable best estimates of what level of income you can expect to receive over the course of your lifetime. These estimates are constantly reviewed (sometimes nightly) to incorporate any effects on expected incomes caused by changes in interest rates, investment returns, life expectancy and/or the actual mortality experience of members sharing the same tontine.

The Banks we work with are required to manage US trust assets in accordance with the Uniform Prudent Investor Act.‍

To ensure maximum security of capital and income for members, the Tontine IRA™ assets will be invested by the Banks in a basket of FDIC insured deposits such that each up Tontine IRA™ account can obtain FDIC coverage up to approximately $10m of assets per member.

Note that while the deposits made on behalf of the Tontine IRA™s are FDIC insured, the IRA accounts themselves are not a deposit or other obligation of, or guaranteed by a Bank or state chartered trust company and are not directly insured by the FDIC. Therefore they should be considered as being subject to investment risks, including a possible loss on the principal amount invested, for example when a member passes away before they have received total income in excess of their original contribution to the TontineIRA™.