Are longevity fund solutions going to change the retirement income game?

“I think this fits the needs of people who are looking to sustain themselves above the pensions that they have,” Pereira, who was recently awarded the FP Canada Fellow distinction, told Wealth Professional. “The ultra-affluent won’t need it, and it’s going to make little difference to below-average income and net worth individuals in Canada, but there is a sweet spot where it can likely help.”

In Pereira’s view, longevity funds offer a much-needed middle ground between two retirement solutions: pension funds and annuities. The latter, he says, are generally shunned because they require clients to give up a large lump sum to receive a trickle of lifetime income.

But compared to the U.S. and other markets, he says Canada’s general advisor population isn’t as well trained to think enough about longevity risk. There’s also currently no commonly accepted academic framework to determine how much money should be placed into tontine-like funds, and they’re not modelled in today’s financial-planning software, presenting a challenge for planners who want to use it in their own practices.

“It’s a bit hard to model how these investment vehicles behave,” Pereira says. “But from what I’ve seen, the providers are being very realistic in their projections, and they’ve actually downplayed how well they’re expected to do over time.”

In the first annual report for Purpose’s Longevity Pension Fund, released just yesterday, the firm said that all the decumulation cohorts in the pool remain overfunded or in a fully funded position. The initial distribution levels, according to the report, were deliberately set at a rate that allowed funding levels of 115% to 120% in order to provide additional income stability in the event that the fund faced early negative returns.