Financial advisors have been running out of options to create reliable sources of income for clients not blessed with defined benefit (DB) pension plans.
Safe and reliable fixed income investments earn little, if anything, in today’s low interest rate environment, while annuities can produce income but lock up money up for years. That leaves many advisors with little choice but to build client portfolios without the certainty that they will meet their current and long-term needs without the markets co-operating.
However, advisors have a new investment option to produce steady and predictable income for clients in retirement: the Longevity Pension Fund is the world’s first mutual fund to incorporate longevity risk-pooling mechanics and provide income for life to retirees.
With this fund, Purpose Investments combines useful features of pensions, annuities and mutual funds into one product, with an accumulation and decumulation class for investors on either side of age 65. It also has a low management fee of 0.60 per cent for the Series F.
“With Longevity, advisors are going to be liberated from the constant worry of whether they will meet their clients’ basic income needs during retirement,” says Som Seif, founder and chief executive officer at Purpose Investments Inc.
The Purpose Investments team developed the fund in consultation with a group of industry leaders including international pension expert Keith Ambachtsheer of KPA Advisory Services Ltd., Bonnie-Jeanne MacDonald, director of financial security research at Ryerson University’s National Institute on Ageing, as well as author and former chief actuary of Morneau Shepell, Fred Vettese.
“We’re all focused on how to solve this problem of income security for Canadians without pensions – or inadequate pensions – and are delighted with the elegant solution that we have created,” Mr. Seif says.
He sees the fund as a welcome solution for advisors who recognize its unique flexibility to help clients create a predictable and secure income stream in retirement.
“In retirement planning, advisors are always trying to address income security,” Mr. Seif says. “This enables them to create a very structured and predictable retirement plan for clients.”
Providing annuity-like returns without their rigid structure is a key attribute of the new fund.
With Longevity, advisors are going to be liberated from the constant worry of whether they will meet their clients’ basic income needs during retirement
— Som Seif, founder and chief executive officer at Purpose Investments Inc.
“Longevity can annuitize the non-discretionary spend of a retiree and make [retirement income] planning easier for the advisor,” Mr. Seif says. “Food, housing, health care costs, whether 65 or 95 years of age, retirees need to know that money is coming in, regardless of whether markets are up or down.”
With non-discretionary needs covered by basic government pensions and a consistent income from the Longevity Pension Fund, advisors can focus on building the rest of their retirement portfolio for spending on trips, gifts to children, or charity.
“It takes the pressure off the advisor of marrying discretionary needs and non-discretionary needs, which they ultimately had to do previously with a balanced portfolio approach,” he says.
While the fund offers regular income distributions like a DB pension or annuity, it can generate higher income payments than traditional products. A major difference is that it provides the liquidity and transparency typical of mutual funds and the flexibility to invest more or redeem the lesser of unpaid capital or net asset value (NAV) at any time in the event of a financial emergency, for example. The same redemption formula applies at death too, which would ultimately go to the beneficiaries. As a mutual fund, though, high payout rates aren’t guaranteed. There are risks tied to market performance.
Another feature of the Longevity mutual fund structure is that it can be held in a regular account or registered plans, including a tax-free savings account. It is also portable and can be transferred from one employer’s savings plan to another with a job change.
The fund targets an initial income payment of 6.15 per cent annually for individuals at age 65, with opportunities for “significant” increases over time, Mr. Seif says. Although the fund intends to offer reliable distributions at an attractive rate, it’s important to note distributions — and the income offered by the product — are not guaranteed and the level of distribution may increase or decrease.
In retirement, Longevity fund owners will be pooled in three-year age cohorts by birth year (65 to 67, 68 to 70, and so on) and payments are designed to move higher as individuals get older.
“It’s the first solution of its kind for advisors to help clients get access to their income, like any mutual fund, while giving them peace of mind that no matter how long they live, they aren’t going to run out of income,” Mr. Seif says.
A new product advisors can use to help produce lifetime income for clients in retirement.
What it is
The Longevity Pension Fund, created by Purpose Investments, is the world’s first mutual fund to incorporate longevity risk-pooling mechanics and provide income for life to retirees.
How it works
The fund combines useful features of pensions, annuities and mutual funds into one product, with an accumulation and decumulation class for investors on either side of age 65.
The Longevity mutual fund structure can be held in a regular account or registered plans, including a TFSA.
The fund targets an initial lifetime income payment of 6.15 per cent annually for individuals at age 65, with opportunities for significant increases over time.
Management fee of 0.60 per cent for the Series F.
Commissions, trailing commissions, management fees and expenses all may be associated with the Investment fund. Always read the prospectus and talk to your advisor before investing. Investments in mutual funds are not guaranteed, and the fund’s value may change frequently. Income and distribution levels may increase or decrease from time to time and are not guaranteed. Past performance may not be repeated.
This article contains forward-looking statements (“FLS”). FLS include anything other than historical information, including expected returns. FLS depend on future events or conditions, are subject to risks and uncertainties, and are based on numerous assumptions. FLS are not guarantees of future performance – results could differ materially from those set forth in the FLS. The reader is cautioned to consider the FLS carefully, not to place undue reliance on the FLS. Unless required by applicable law, it is not undertaken, and specifically disclaimed. Purpose specifically disclaims any intention or obligation to update or revise FLS, whether as a result of new information, future events or otherwise.
Advertising feature produced by Globe Content Studio with Purpose Investments. The Globe’s editorial department was not involved.