The Office of the Superintendent of Financial Institutions has issued a draft policy advisory indicating that it would allow pension plans to utilize annuities.
OSFI issued the advisory in response to requests for comment on the acceptability of so-called “buy-in annuities” as a potential investment option for pension plans. It says that such an investment would be similar to a traditional annuity; however, instead of issuing individual certificates to the covered retirees and paying pensions to them individually, the policy would pay the aggregate pension amount to the pension fund. The responsibility for administering the benefits to the retirees would remain with the plan administrator.
The aim of this sort of investment is to limit potential losses related to the retiree liabilities of the plan covered by the policy. The buy-in annuity would provide a hedge against investment, longevity and inflation risk for the liabilities covered by the policy, OSFI notes.
The advisory indicates that the regulator has concluded that, provided the investment would be permissible under the plan terms, it would have no objections in principle to a federally-regulated pension plan investing in a buy-in annuity issued by a life insurance company. The advisory is being published to inform plan administrators of its expectations for these sorts of investments.
Comments on the draft policy advisory are sought by March 9.