September 18th, 2018—Longer living retirees need the option of pure longevity insurance, according to new report published by the C.D. Howe Institute. In “Making the Money Last: The Case for Offering Pure Longevity Insurance to Retiring Canadians,” author Don Ezra explains and makes the case for the provision of longevity insurance, and argues for governments to take the necessary steps to facilitate its offering by Canadian insurers.
With a large swath of babyboomers recently retired or set to retire, and many of them having accumulated retirement wealth in capital accumulation plans, the time has come for governments to shift their attention to policies facilitating the efficient and economical decumulation of retirement capital. Rather than wondering whether they will outlive their assets, retirees should be able to secure a lifetime income stream that kicks in if they outlive their life expectancy. The provision of longevity insurance is an essential component for making this happen.
“Government tax policies are actually hindering the provision of longevity insurance,” says Ezra. “Policy needs to shift, and shift quickly, to make a stand-alone longevity insurance market a reality.”
For reasons related to individual taxation, Canadian insurers do not currently offer pure longevity insurance contracts on a stand-alone basis. Unbundling the pure longevity insurance component from these financial products would make the stand-alone contract cheaper and likely more attractive.
The report also recommends policy makers:
- Change the tax rules so that it becomes possible and practical for insurance companies to offer pure longevity insurance products, thereby promoting innovation.
- Invest in retirement planning education with respect to longevity risk protection, stressing guaranteed lifetime income rather than using the word “annuity”.
- Once possible and practical, require capital accumulation plans like defined contribution plans to offer partial stand-alone longevity insurance for voluntary member purchase at retirement.
- Work with insurance regulators to ensure that solvency rules for stand-alone, single premium longevity insurance contracts are adequate to protect both consumers and the industry. The rules should be such as to discourage over-aggressive pricing, but not so onerous that insurance companies face a greater burden than with their immediate annuities.
The C.D. Howe Institute is an independent not-for-profit research institute whose mission is to raise living standards by fostering economically sound public policies. Widely considered to be Canada’s most influential think tank, the Institute is a trusted source of essential policy intelligence, distinguished by research that is nonpartisan, evidence-based and subject to definitive expert review.
For more information contact: Don Ezra, former co-chair of global consulting, Russell Investments, former Vice-President, the Canadian Institute of Actuaries; Laura Bouchard, Communications Officer, C.D. Howe Institute, at 416-865-9935 or lbouchard@cdhowe.org