Is the Longevity Pension Fund a cure for retirement income worries?


    The initial payout rates for purchases in 2021 range from 5.65% to 6.15% for the youngest cohort, increasing to 6.4% to 6.5% for the second youngest, 6.4% to 6.9% for the second oldest and 6.9% to 7.4% for the oldest cohort.

    The last time Canada’s financial blogovers referred to a particular product as a “game changer” was Vanguard’s Asset Allocation ETFs, announced in early 2018 and since hit by several major competitors in the ETF space.

    Although this is more of a mutual fund than one ETF, LPF appears to be a mix of traditional annuities and vehicles, like the latest from Vanguard Vanguard Retirement Income Portfolio (VRIF / TSX) aiming for an annual payout of 4% but not guaranteed.

    Most retirees without DB annuities rely on some version of William Bengen’s 4% rule to decide what percentage of a portfolio they can safely withdraw each year without running out of money. As Roberts noted, paying 6.15% annually at age 65 is “a big step up the ladder of retirement financing.”

    Malcolm Hamilton notes that the target distribution of 6.15% should not be confused with a return of 6.15%: “The targeted return is approx. 3.5% minus fees. As a result, it is expected that approximately 50% of the distribution will consist of capital returns. People shouldn’t imagine that they are earning 6.15%; a net return of 3.5% is quite attractive in this environment. Of course there is no guarantee that you will earn the 3.5%. ”

    However, there is an option to pay more than that when the retirees’ old age and mortality credits kick in. As Seif explains, while the fund’s required return may be 3.5% net, “longevity risk pooling” can make up the difference. Compared to pensions and other similar products, the LPF offers the best death rate after the age of 82, according to Purpose.

    While Purpose uses a mutual fund structure for this innovative platform, the underlying investments are in Purpose’s own ETFs, which is the company’s strength. The asset mix, according to the brochure, consists of a fairly aggressive 47% stocks, 38% fixed income and 15% alternative investments that include gold and a real asset fund. The geographic mix includes 25% Canada, 60% USA, 9% international and 6% emerging markets.

    While some investors can replicate this mix in self-managed RRIFs, the inevitable fact is that Retirees need to take more investment risk. “Living with near-zero returns is difficult. Investors may need to expand their portfolio choices from the convenient 50% equity, 50% fixed income towards the 70% equity ball park. says Adrian Mastracci, portfolio manager at Lycos Asset Management Inc. based in Vancouver. “Investors need to broaden their vision and Purpose did it for them. Kudos to them. ”


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