The case for longevity insurance

Chances are you have clients concerned about outliving their savings. In fact, the fear of outliving savings is the most frequently cited financial fear among retirees, finds the FPSC.

Longevity insurance would help, argues a report from the C.D. Howe Institute, which also suggests ways to make longevity insurance a reality. With a pure longevity insurance product, currently unavailable to Canadians, clients would pay premiums into a pool out of which payments would be made to those who live into very old age.

The report, written by David Don Ezra, a former vice-president of the Canadian Institute of Actuaries, provides examples from the U.S. and U.K., and cites both psychological and tax reasons that impede the development of pure longevity insurance. (While the U.S. has a form of longevity insurance, the U.K. is in the recommendation stage.)

For example, “early death causes a huge financial loss to the annuitant, and that is a big emotional barrier to purchase.” Overcoming this impediment would require retirement planning education and rules that discourage aggressive pricing, says the report.

For registered annuities, tax rules must change so that single-premium, standalone deferred annuities aren’t caught in the age-71 minimum withdrawal rules, says the report.

Further, tax rules should allow standalone deferred annuities to be prescribed annuities (outside registered plans) with clients not paying tax unless annuity payments are received.

As baby boomers retire, “the time has come for governments to shift their attention to policies facilitating the efficient and economical decumulation of retirement capital,” says the report. “The provision of longevity insurance is an essential component to making this happen.”

For full details, read the C.D. Howe Institute report.

Staff

The staff of Advisor.ca have been covering news for financial advisors since 1998.