The Financial Services Regulatory Authority of Ontario (FSRA) is warning consumers about decumulation products in a new guidance document which states that the products carry a number of consumer risks and are not subject to the same protections as registered pension plans or insurance products.

“FSRA is taking steps to educate and protect consumers who are retired or planning for retirement. FSRA is releasing information guidance that explains distinctions between decumulation products and pension or insurance products. It also offers some important questions consumers should consider before investing,” the regulator announced in a statement about the guidance’s release.

"As more investors move into the phase of life where they're looking to find ways to live on their savings, this product area is likely to experience further growth," said  Stuart Wilkinson, chief consumer officer at FSRA. "Decumulation products may pool funds in an attempt to achieve investment and longevity benefits, but there are risks involved. Our guidance is intended to help Ontario's aging population fully understand those risks.” 

The regulator goes on to point out that the products are typically mutual funds regulated by the Ontario Securities Commission (OSC). In the guidance, they add that, depending on how the products are structured, they will be afforded different regulatory treatment and protections for consumers. (The guidance goes on to discuss which laws apply to different decumulation products.)

“While FSRA supports responsible innovation in the sectors it regulates, this guidance informs consumers that some of these products are not insurance products or pension plans. FSRA, therefore, does not regulate them, even though they are designed to make payments based on the projected life expectancy of the consumers or may refer to themselves as pensions,” the guidance states. “To assist consumers, this guidance describes factors consumers should consider before choosing whether to invest in these decumulation products, which are not regulated by FSRA.” 

The guidance further states that uninsured decumulation products generally require the investor to bear the risk of the investment not providing sufficient income. “Consumers who invest in these decumulation products do not have the same regulatory protections that exist for insurance products or registered pension plans.”