More liberal tax laws, such as allowing more regular amendments to minimum withdrawals, linking them to returns and longevity, or eliminating minimum withdrawals altogether, would be important projects to ensure the long-term safety of retirees.
Laurin also mentioned decumulation solutions for capital accumulation schemes introduced in recent years. Variable benefits (subject to annual minimums and maximums) are now available to members of defined-contribution (DC) plans. Variable Pay Life Annuities (VPLAs) and Advanced Life Deferred Annuities (ALDAs) were created as a result of changes to federal tax rules.
Larger DC plans will provide VPLAs, which will allow members to pool their longevity risk and convert their balances into life annuities with payments that will vary based on the experience of the plan. ALDA is likely to be offered by life insurers and will enable the purchase of a life annuity that will start paying at a later age.
However, due to certain tax restrictions, the new option makes economic sense to apply only among a subset of capital accumulation plan participants, namely those who are included in the largest DC plans. Effectively, he said, senior citizens are obliged to purchase longevity insurance at a time when governments are concerned about the rising cost of providing long-term care to an aging population.
In addition, Laurin said the liquidity restrictions prevent the purchase of life annuities within the TFSA. As an alternative to group RRSPs, many companies are offering group TFSAs to their employees. TFSA investors who wish to purchase an annuity must withdraw funds from the TFSA and purchase an annuity contract, where the interest portion of the payment is taxable.
