Tax and other reforms are needed to enable stand-alone longevity insurance products to be offered in Canada, argues a report published Tuesday from Toronto-based C.D. Howe Institute.
The report, Making the Money Last: The Case for Offering Pure Longevity Insurance to Retiring Canadians, makes the case for the provision of longevity insurance, and recommends policymakers make it easier for insurers to offer these products.
“With a large swath of baby boomers recently retired or set to retire, and many of them having accumulated retirement wealth in capital accumulation plans, the time has come for governments to shift their attention to policies facilitating the efficient and economical decumulation of retirement capital. The provision of longevity insurance is an essential component for making this happen,” the report states.
Canadian insurers currently do not offer stand-alone, longevity insurance, the report notes. Instead, this sort of coverage is generally bundled into products that “make the existing offerings expensive for consumers and largely unattractive.”
Unbundling the pure longevity insurance component of these products would enable the provision of cheaper stand-alone insurance, the report says.
Prevailing tax policy is one of the obstacles to companies offering these kinds of contracts. As a result, the report calls for reform to tax rules that are hindering stand-alone longevity insurance offerings.
“Policy needs to shift, and shift quickly, to make a stand-alone longevity insurance market a reality,” says Don Ezra, author of the report and former co-chair global consulting for Russell Investments, in a statement.
The report also recommends governments invest in retirement planning education with respect to longevity risk protection. “Public education on the value of longevity risk protection at the start of retirement, when it is cheap to purchase, would be helpful,” the report argues, and these efforts should stress the idea of “guaranteed lifetime income rather than using the word annuity.”
In addition, once these products become available, capital accumulation plans should be required to, “offer their members the option to buy longevity protection at set ages towards the end of the accumulation phase,” states the report.
The report calls on regulators to ensure that existing solvency rules are adequate for these products. “The rules should be such as to discourage over-aggressive pricing, but not so onerous that insurance companies face a greater burden than with their immediate annuities,” the report adds.