Jun 1, 2021
Purpose Investments tries wooing retirement savers with new annuity-like fund
Canada is on the road to outperform the U.S. market: BMO Capital Markets’ Belski
Chief Financial Commentator, CTV
The number one question I am asked is, "How will I know if I have enough money to see me through my retirement?"
It is a great question and it depends on how much money you have saved, the sources of your retirement income and the lifestyle you hope to enjoy.
It can get complicated as well. There are wildcards: inflation could tick higher, you could live longer than you expected, the markets could tumble. Or, as we have witnessed, a pandemic could strike when you least expect it.
We also know the financial services arena has done a great job of zeroing in on the accumulation phase of retirement planning but what about the decumulation when actual funding of your retirement is required?
Finding certainty in today's environment can be a challenge.
Finding certainty is what Purpose Investments hopes to achieve with a new offering dubbed the Longevity Pension Fund, which it unveiled Tuesday.
It is a hybrid of sorts that can live in a tax-free savings account, registered retirement account, or a regular account. Purpose said in a release that it spent two years “working closely” with the Ontario Securities Commission before getting the go-ahead to launch the fund.
Longevity acts like an annuity with regular payments for life, however it operates more like a mutual fund. In other words you can buy or sell at your discretion creating financial flexibility should life circumstances change.
“With corporate pensions disappearing and life expectancies increasing, income insecurity in retirement is a big social issue. We wanted to solve this and offer Canadians a defined-benefit-like plan, so they know a paycheque is coming for as long as they live,” Purpose Investments Founder and Chief Executive Officer Som Seif told me.
The product's objective is to provide a steady stream of income for life and will target an initial lifetime payment of around 6.15 per cent annually for those over the age of 65 with a goal of paying significantly more over time, according to the release. Purpose notes that younger savers can put money into the fund for a seamless automatic transition to lifetime income when they hit 65, without triggering a taxable event.
Of course those who may join the fund later in life can expect larger payouts due to the expected shorter timeframe.
If you were to die prematurely, all your money isn't lost. Your estate would receive the lesser of the original investment minus distributions paid or the current net asset value, according to Purpose. If your distributions were greater than the initial investment, there would be no redemption value.
That is how this hybrid product works differently than an annuity, and more along the lines of a mutual fund.
It is a fact that defined benefit plans have been on the decline for years and in many cases replaced with defined contribution plans and workplace group plans. However, not everyone has the ability or the inclination to manage their own money. This fund has the potential to solve that problem.
Bottom line: We could spend a third of our life in retirement and coupling it with a regular paycheque could help redefine our "golden years."