Slow change is coming to the decumulation product and regulatory landscape, but it’s hoped that innovation on the part of Canada’s largest defined contribution (DC) pension plan, the Public Employees Pension Plan in Saskatchewan, will inspire broader interest in one concept, the variable payment life annuity (VPLA).

These pool both investment and longevity risk to make regular payments, hopefully for life (although this is not guaranteed) to the retirees investing in them. Actuarial and consulting firm Eckler Ltd. explains that “VPLAs pool member assets and invest those assets in the market. Members are then provided an income based on the performance of those assets and the mortality experience of the members in the pool,” they write in the firm’s February 2024 CAPit Capital Accumulation Plan Income Tracker report.

Legislative amendments 

The 2019 federal budget committed to making dynamic pensions, VPLAs, a reality. This was followed by legislative amendments to permit their existence in 2021. Industry watchers say the next step is for provinces to develop their own legislation, in turn, and for all to develop regulations governing the new offering.

“Some jurisdictions have moved forward with legislation, including federally, British Columbia, Saskatchewan and Quebec,” says Laura Strachan, principal with Eckler, to the Insurance Portal. “They don’t have regulations yet in place.” 

For the industry that would offer such products to the public on a broader scale, however, the changes are not sufficient to move forward – in addition to missing regulations, VPLAs as they exist today, are only allowed to be created and offered as an option by DC pension plans large enough (the plans require scale), or by pooled registered pension plans (PRPPs), which reportedly have enjoyed very poor uptake since their introduction more than 10 years ago. “It hasn’t been long and they haven’t taken off,” says Noeline Simon, vice president of taxation, pension and reporting with the Canadian Life & Health Insurance Association (CLHIA), to the Insurance Portal.

Education needed 

Ottawa’s preference, she says, is for the industry to use the PRPP vehicle to offer VPLAs to retirees who are not part of large DC plans. There are barriers to making this a reality, including PRPP fee caps, additional reporting requirements and a lack of scale within PRPPs which require transfers from smaller DC plans and registered accounts. An effort is also needed to convince and educate the public about PRPPs, a product for which most have no frame of reference (an issue that VPLAs face, as well).  

“There are very few licensed PRPP administrators in place today these days. That’s just a reflection of some of the issues with the PRPP,” Simon adds.  

Where the CLHIA initially lobbied the government to permit standalone VPLAs which could be offered to the broader public, today it is also working with pension specialists in Ottawa to make the PRPP solution work, an effort they say may take both legislative and regulatory changes.  

“We want the VPLA solution to be broadly available,” agrees Simon. “We were happy to see the first level of legislation that was issued and passed but it doesn’t go far enough.” 

She says it’s estimated that a DC plan would need 10,000 members to have a sufficient number of retirees interested in the VPLA option to make VPLAs viable. It’s also estimated that at least 100 members are needed per cohort to effectively run a VPLA program.  

“VPLAs require scale,” Simon says. “The more participants and funds, the more feasible and effective the solution. 

A new development 

Against this backdrop, a new development is occurring in Saskatchewan, which proponents of the VPLA hope will bring visibility to the concept: Eckler announced in February that it is currently working with the Public Employees Pension Plan in Saskatchewan, the largest DC pension plan by assets in Canada, to make the VPLA available as an option for that plan’s retirees. Eckler’s partners say the implementation process is expected to continue for a number of months.

“It’s great that they are looking to lead the way with VPLA development, not just by providing a valuable benefit to their members, but also to help raise awareness in Canada of the benefits that VPLAs can offer,” says Dianne Tamburro, principal with Eckler, to the Insurance Portal. “We’re all living longer, and we need sources of income that help us, especially in those later stages where we may not be able or willing to manage our own investments. This (the VPLA) takes that worry off of the individual.”