Canadians should be able to hold annuities in TFSAs, industry group says

The Canadian Life and Health Insurance Association (CLHIA) is calling on Ottawa to allow Canadians to hold life annuities in their TFSAs.

The recommendation was part of the group’s submission paper sent on Monday to the Minister of Finance ahead of the 2020 federal budget. CLHIA is also asking the federal government to expand the availability of variable payment life annuities (VPLAs) to pool participants in all registered retirement plans, not just members of large defined contribution (DC) plans.

In its submission paper, CLHIA noted that Canadians increasingly have less access to defined benefit (DB) pensions, and are instead relying on DC plans, RRSPs, RRIFs, PRPPs and TFSAs to ensure they have sufficient income in retirement. The group argued that expanding access to annuities would give Canadians more opportunity to secure guaranteed income for life and transfer longevity risk to insurers.

“Allocating a portion of private savings within registered plans to provide life annuities starting at advanced ages would allow Canadians to better manage their assets, rather than over-saving and under-consuming, for fear of ‘living too long and running out of funds’,” CLHIA wrote.

In last year’s budget, the federal government proposed rule changes allow for the use of Advanced Life Deferred Annuities (ALDAs) and VPLAs — an initiative that was welcomed by CLHIA. However, CLHIA said the government could further help Canadians achieve retirement income security by implementing its recommended changes.

Currently, the liquidity requirement of TFSA rules prevents life annuities from being held in TFSAs. CLHIA recommended that TFSA holders be permitted to waive this requirement, at least at older ages, so that they can hold life annuities in the accounts.

“As balances in TFSAs grow, they will become an increasingly useful source of retirement income,” the submission argued.

CLHIA also said that the VPLA rules as proposed in last year’s budget would effectively limit VPLAs to members of large plans, “disadvantaging those who work for small employers or save through other types of retirement plans.” CLHIA recommended the government allow standalone VPLAs for all pool participants of registered retirement plans “to provide the broadest possible access.”

The federal government’s proposed rules governing ALDAs and VLPAs, as outlined in last year’s budget, were intended to allow for the sale of these products starting this year. However, the government has not yet passed legislation to allow for the changes.

CLHIA’s submission paper also recommended that Ottawa work with the industry to ensure Canadians have better access to affordable medicine; fight climate change; phase out the capital tax on Canadian financial institutions; update privacy legislation; and expand and accelerate infrastructure projects.

Rudy Mezzetta

Rudy is a senior reporter for Advisor.ca and its sister publication, Investment Executive. He has been reporting on tax, estate planning, industry news and more since 2005. Reach him at rudy@newcom.ca.