Segregated funds soar in 2014

par Alain Thériault | July 06 2015 01:39PM

Sally Brick

Premiums deposited in segregated funds surged by 20% in 2014 versus 2013. The results mark the first growth this product has seen since its 2009 tailspin triggered by the crisis.Total individual annuity assets stood at $133.6 billion in Canada in 2014, LIMRA research director Sally Brick announced in her most recent report on the sector. Sales of these products topped $16 billion in 2014.

Fixed annuities sales were hobbled by low interest rates. LIMRA presents the combined results of term deposits and immediate annuities in this category. Growth in sales of fixed annuities was zero in 2014 and plunged 13% in the fourth quarter of 2014 versus the same quarter of 2013.

Segregated funds kept their momentum in the fourth quarter of 2014 compared with the previous year, with growth of 16%. This product seems to have left its troubled years behind. In 2013, sales fell by 9% versus 2012, the fifth year of consecutive declines.

Seg funds are now being buoyed by the performance of US financial markets, and more recently global markets. In the April 2015 issue of an economic publication aimed at advisors, Industrial Alliance senior vice-president and chief economist Clément Gignac described this trend.

“After benefiting from the expansion of the US stock market for over two years, our strategy is gradually turning to international markets where growth outlooks for profits exceed those seen in North America. The US market should nonetheless deliver a positive return in 2015 because of the enviable economic situation on the global scale,” Gignac explains.

TFSAs emerge

The LIMRA report says that three-quarters of segregated fund sales in 2014 flow into registered (39%) and non-registered (36%) accumulation vehicles. Registered retirement income funds and lifetime annuity funds accounted for 14% and 5% of sales. The tax-free savings account (TFSA) gleaned merely 6%. The landscape may change because the 2015-2016 federal budget boosted the contribution limit for TFSAs from $5,500 to $10,000.

The modest share of segregated fund sales into TFSAs hides an emerging force. Segregated funds in TFSAs drew premiums of $554 million in 2014, for 52% growth from 2013.

In 2014, investors opened 23,169 TFSAs accounts that include segregated funds in Canada. The use of TFSAs as segregated fund vehicles grew by 39% in 2014 versus 2013.

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