# Will Annuities Prosper



## sags (May 15, 2010)

With the recent events, regarding the new pension scheme proposed by the Government, and the known fact that many people will not have a DB pension to rely on, but hopefully will have a pool of capital that they wish to turn into a source of steady retirement income, there is going to be a huge new client base searching for annuities or similar products.

I am wondering who will choose to offer these annuities?

Every financial institution will be lined up to take and hold the deposits, but will they all be required to offer annuities? Will the annuities be protected against default by the service provider? 

Manulife has an annuity business, that hasn't done a whole lot for them.

There is risk involved, and while a company may offer an annuity that is so anemic that it is almost "risk free" from their perspective, it may not be attractive to investors. So they must keep a balance in between profitability and attractability.

Thus far, most of the discussion has focused on the "giving" end of the new proposal and very little has been said about the "receiving" end of things.


----------



## Four Pillars (Apr 5, 2009)

sags said:


> With the recent events, regarding the new pension scheme proposed by the Government, and the known fact that many people will not have a DB pension to rely on, but hopefully will have a pool of capital that they wish to turn into a source of steady retirement income, there is going to be a huge new client base searching for annuities or similar products.
> 
> I am wondering who will choose to offer these annuities?
> 
> ...


I'm pretty sure annuities are already offered by all the insurance companies.


----------



## HaroldCrump (Jun 10, 2009)

Yeah, annuities are around, and have been around a long time.
I also wonder exactly how many private sector folks (without true DB pensions) will actually sign up for this proposed "pension plan" by the govt.
The whole thing stinks of a half-hearted, insipid effort by the Flaherty administration to postpone the issue, deflect the whole "enhance CPP" discussion and avoid discussion/conflict.
There is no real motivation or will behind this "plan".

I'd guess most folks don't understand the proposal, and don't care.

Essentially, the status quo is being maintained.
The gold-plated DBP "haves" vis-a-vis the "have-nots".


----------



## olivaw (Nov 21, 2010)

Excuse my ignorance, but are you referring to the Pooled Registered Pension Plan? 

Just a personal comment on that. I do not have a defined benefit pension plan so I won't be as secure as the lucky few who have such a thing. Nonetheless, I have little interest in any type of collective pension plan administered by a private financial company. I suspect that an unfair portion of the ROI would be eaten up by administration fees. 

Government plans are different and I'd feel much more secure. It may not be the right time to increase CPP premiums for employers but I'd happily increase my own CPP contributions if it meant a more secure retirement.


----------



## sags (May 15, 2010)

This is something I didn't know.

Apparently the Canadian Government used to administer a Canadian Government Annuity program. It was discontinued in 1975.

Why don't they just cut out the middle man (insurance companies) and offer them again? 

http://www.servicecanada.gc.ca/eng/cs/ga/030.shtml

Now that is interesting................the program started in 1908. Also note, it was abandoned because it didn't work. Is history repeating itself?

Here is a link to a site with information. Note the same rhetoric used at that time.

"people aren't saving enough for retirement" etc.

http://www.immediateannuities.com/a...canadiangovernmentannuitydocuments/40024.html


----------



## spirit (May 9, 2009)

*Who can read the future?*

I remember being on my association member's representative group in the 1970's and some members were complaining bitterly. Our pension money was tied up for 25 years in bonds paying only 4%: when interest rates were 12-18%. Many of us could not wait until those contracts expired and we could invest our money " in the market where real money was to be made" Our group compromised and instead of 4% of our gross pay going towards our pension only 2.5 % would be deducted and the other 1.5% was our members to be invested (wasted as they wished. Today that 4 % looks pretty good doesn't it? But 30 odd years ago people were pretty bitter about losing all that money which was invested in slow but steady bonds . All I can say is everyone had choices to make years ago and we all did just that. Who knows if today's ideas will hold water 30 years from now? I think the old timers had it right. You put some money away in safe investments over many years. Either you do it yourself or have your job do it for you. If your job doesn't then you have to. JMHO.


----------



## Square Root (Jan 30, 2010)

They should let banks sell annuities. More competition should improve the pricing and product design. Also cut out the high cost commission sales force.


----------



## kcowan (Jul 1, 2010)

Square Root said:


> They should let banks sell annuities. More competition should improve the pricing and product design. Also cut out the high cost commission sales force.


With the exception of some low-cost e-funds, the banks have not reduced the costs of investing after being allowed to acquire the investment companies. And TD was the first to introduce them because they took a pass on acquisition.

Isn't it annuities that have caused so much financial instability at MFC?


----------



## MoneyGal (Apr 24, 2009)

kcowan said:


> Isn't it annuities that have caused so much financial instability at MFC?


No, GMWBs.


----------



## Larry6417 (Jan 27, 2010)

kcowan said:


> With the exception of some low-cost e-funds, the banks have not reduced the costs of investing after being allowed to acquire the investment companies. And TD was the first to introduce them because they took a pass on acquisition.
> 
> Isn't it annuities that have caused so much financial instability at MFC?


I disagree. Banks have lowered costs for investors substantially through lowered commissions (anyone remember paying 2.5% per trade?), lowered RRSP admin. fees, and index funds. When I first started investing, I bought mutual funds. It was not uncommon to pay 5% (or higher) front-end fees. Popular funds charged as much as 9% up front!


----------



## Brian Weatherdon CFP (Jan 18, 2011)

*On Life Annuities*

On the discussion of Life Annuities (LA): they were very popular when %-rates were high. Now you're right -- LA's offer too little for most people under 68 or 70. 

When our 70s comes, LA's offer high guaranteed income for life! Consider a *LA Ladder *ages 70, 73, 76... 

Eg. 77 year old getting cash flow near 10%. Likes: high cash flow; low tax; income forever; continues to beneficiary til 90 if he dies sooner.

Under age 70 . . . would you consider a dividend-income portfolio safe enough for you until your age merits including a Life Annuity?


----------



## stantistic (Sep 19, 2015)

*Update*

For the time period 2011-2013, extensive discussion had taken place concerning annuities. Since then, very little. I am contemplating a life annuity. Have any meaningful changes taken place i.e. taxation, rate outlook, etc ?


----------



## twa2w (Mar 5, 2016)

stantistic said:


> For the time period 2011-2013, extensive discussion had taken place concerning annuities. Since then, very little. I am contemplating a life annuity. Have any meaningful changes taken place i.e. taxation, rate outlook, etc ?


Yes there were changes recently passed that come into effect IIRC in Jan 2017. 
Theses apply to prescibed annuities ( non registered funds) and for annuities bought after this date, a larger portion of the annuity payout is taxable.
Of course the insurance co's as pushing to sell annuities before then :-(


----------



## OnlyMyOpinion (Sep 1, 2013)

Per: https://www.sunnet.sunlife.com/files/advisor/english/PDF/810-4425.pdf, and many other related articles as well. Google "higher tax on prescribed annuities".


----------



## Numbersman61 (Jan 26, 2015)

I'm 75, my wife is 65. We currently have a comfortable life in retirement; our lifestyle is is primarily funded by investment income. I currently make all the investment decisions but I expect that at some point, I won't have the intellectual capacity to continue in this role. Hopefully, in ten years, interest rates will be sufficiently high to enable us to buy a life annuity.


----------



## Beaver101 (Nov 14, 2011)

^ And won't the annuity be alot more expensive?


----------



## Numbersman61 (Jan 26, 2015)

Beaver101 said:


> ^ And won't the annuity be alot more expensive?


Actually, I don't believe it will be more expensive. Perhaps you can explain why you feel it would be more expensive. I'm certainly not an expert on annuities and would appreciate insight from those who have some expertise on the subject.


----------



## humble_pie (Jun 7, 2009)

Numbersman61 said:


> I'm 75, my wife is 65. We currently have a comfortable life in retirement; our lifestyle is is primarily funded by investment income. I currently make all the investment decisions but I expect that at some point, I won't have the intellectual capacity to continue in this role. Hopefully, in ten years, interest rates will be sufficiently high to enable us to buy a life annuity.




numbers i think if you're 75 & you're doing as splendidly as you are, then the outlook is excellent!

might i be able to suggest though - being a female myself - that you slowly dial your wife into the financial picture? it's noticeable in cmf forum that we never hear from enough spice ...


.


----------



## Numbersman61 (Jan 26, 2015)

humble_pie said:


> numbers i think if you're 75 & you're doing as splendidly as you are, then the outlook is excellent!
> 
> might i be able to suggest though - being a female myself - that you slowly dial your wife into the financial picture? it's noticeable in cmf forum that we never hear from enough spice ...
> 
> ...


Not going to happen. Some folks don't have an aptitude for numbers and she'll be the first to admit that she is in that category. I've tried to explain the gross-up and dividend tax credit to her many times but she just cannot understand the concept.


----------



## humble_pie (Jun 7, 2009)

Numbersman61 said:


> Not going to happen. Some folks don't have an aptitude for numbers and she'll be the first to admit that she is in that category. I've tried to explain the gross-up and dividend tax credit to her many times but she just cannot understand the concept.



they - the husbands - always say that. It's truly difficult for me to grasp how there can be so many women - these usually seem to be older women - out there who willingly avoid learning anything about financial management.

a few years ago one of my daughters - she was still a teen, starting college at the time - wondered out loud whether one's first career job as a female might turn out to be more important than one's first boyfriend.

i go Everything Depends on the Situation. But i was so pleased to see that she had grasped, at a very young age, how important financial independence for women is.

.


----------



## humble_pie (Jun 7, 2009)

Numbersman61 said:


> Actually, I don't believe it will be more expensive. Perhaps you can explain why you feel it would be more expensive. I'm certainly not an expert on annuities and would appreciate insight from those who have some expertise on the subject.



i'm no expert on annuities either, but my sense is that they are bespoke pooled funds with strictly-scheduled *guaranteed* payouts & distributions which are engineered by actuaries.

this level of expertise doesn't come cheap. An annuity fund would be far more complicated to manage than an ordinary mutual fund or ETF, which can float in price & pay distributions according to the vagaries of the market. Common sense suggests that MERs are buried inside annuities which are likely to be higher than many mutual funds. I would not be surprised to see an annuity draining off 3% or higher in management, custodial & other fees.

afaik, an annuity would not be *guaranteed* in the general sense that we understand this word. The insurance company is pledged to pay the contracted annuity distributions, but if the insurance company fails, then my general assumption is that the entire annuity would be lost. This is said to be the reason some folks purchase two or more or even several annuities. I'd be very happy to hear that this (insurance co fails/annuity fails) is not the case.


.


----------



## Numbersman61 (Jan 26, 2015)

humble_pie said:


> i'm no expert on annuities either, but my sense is that they are bespoke pooled funds with strictly-scheduled *guaranteed* payouts & distributions which are engineered by actuaries.
> 
> this level of expertise doesn't come cheap. An annuity fund would be far more complicated to manage than an ordinary mutual fund or ETF, which can float in price & pay distributions according to the vagaries of the market. Common sense suggests that MERs are buried inside annuities which are likely to be higher than many mutual funds. I would not be surprised to see an annuity draining off 3% or higher in management, custodial & other fees.
> 
> ...


I'm not interested in a complex annuity with all kinds of bells and whistles. When I'm ready to buy one, I want a simple annuity that pays a fixed amount until we both die. If we die before normal life expectancy table, the insurance company will be the winner; if we outlive the life expectancy table, we win. I want the only risk to be the viability of the life insurance company. As you indicate, buying annuities from a number of companies spreads the risk.


----------



## stantistic (Sep 19, 2015)

Thanks all who replied.


What prompted post #12 is that not too long ago I was entering an order for a modest amount of calls. On my mind was the number of shares I was covering. I entered the order for a total intended amount of $30,000. Actually it was for $3,000,000. Waaaaaaaaaaaaaay more than what I had! Fortunately for me, the brokers’s floor trader caught it.


Clearly in my twilight tears, I should not be playing with this kind of fire but should hide in the security of a life annuity. Even if the rates now are not optimal.



Again, thanks to all who replied. I will borrow from the Polish drinking song "May you live a hundred years…" and enjoy the benefits of a prescribed life annuity.


----------



## Eclectic12 (Oct 20, 2010)

humble_pie said:


> ... afaik, an annuity would not be *guaranteed* in the general sense that we understand this word. The insurance company is pledged to pay the contracted annuity distributions, but if the insurance company fails, then my general assumption is that the entire annuity would be lost ...


There's several levels of protection ... just not as guaranteed as the gov't backed deposit insurance.

The first level is the Life Insurance protection fund, Assuis.



> Assuris is funded by the life insurance industry and endorsed by the Canadian government.
> 
> If you are a Canadian citizen or resident, and you purchased a product from a member life insurance company in Canada, you are protected by Assuris. Your annuity income is protected up to $2000 per month with each insurance company. If your income from your annuity exceeds $2000 per month, the protection is limited to 85%.


https://annuitybrokers.ca/frequently-asked-questions/
http://www.assuris.ca/Client/Assuris/Assuris_LP4W_LND_WebStation.nsf/welcome_en.html?ReadForm


The next level is whether another insurance company buys the failed company policies. 


I believe this is what happened to Confed Life's annuities, when then named CompCorp (now Assuris) as well as competitors buying blocks of business came into play. Confed Life had an annuity line of business when it went under.


Cheers


*PS*

The first of the four Canadian Life Insurers to be liquidated Les Coopérants in 1992 apparently established the precedent that policy holders receive priority in the liquidation of a life company. I suspect the Nortel pensioners would have preferred this status.


----------



## humble_pie (Jun 7, 2009)

Numbersman61 said:


> I'm not interested in a complex annuity with all kinds of bells and whistles. When I'm ready to buy one, I want a simple annuity that pays a fixed amount until we both die. If we die before normal life expectancy table, the insurance company will be the winner; if we outlive the life expectancy table, we win. I want the only risk to be the viability of the life insurance company. As you indicate, buying annuities from a number of companies spreads the risk.



i doubt that the insurance company's fees - actuarial design, annuity managers, etc - will be significantly less if one buys a plain life annuity. Such fees might be slightly less, but not significantly less.

my belief is that all annuities have steep admin charges. Because of their fixed distributions, all must engage in significant hedging & counter-balancing of risks (please note, i am not suggesting that annuity vendors are speculating in derivatives) (but as a sometime derivative player myself, i know how these interesting little creatures can be used to hedge around any position) (hedging future obligations are, classically, what insurance companies do) (these kinds of professional investment services require expert managers & tend to cost $$)


----------



## humble_pie (Jun 7, 2009)

Eclectic12 said:


> There's several levels of protection ... just no as guaranteed as the gov't backed deposit insurance.
> 
> The first level is the Life Insurance protection fund, Assuis.
> 
> ...



thankx very much eclectic. I knew somebody like yourself would have good info to shed light on the topic!

but note that Assuris protects up to $2000 per month per annuity contract. And - as with the CIPF - in a global financial collapse, would Assuris even continue to function ... would even the CDIC continue to function ... 

.


----------



## NorthernRaven (Aug 4, 2010)

humble_pie said:


> thankx very much eclectic. I knew somebody like yourself would have good info to shed light on the topic!
> 
> but note that Assuris protects up to $2000 per month per annuity contract. And - as with the CIPF - in a global financial collapse, would Assuris even continue to function ... would even the CDIC continue to function ...
> 
> .


CDIC would at least _de facto_ be the Government of Canada, so there's little point worrying about that big a collapse... 

Assuris is designated by federal and provincial legislation as the compensation entity, although I don't think they have the sort of funding fallback to Treasury that CDIC does. They have $100 million floating around for immediate cleanups; anything beyond that they have to assess their members like CDIC would. If you have a giant insurance collapse this might not work, but you are back in asteroid territory and a government bailout if the entire industry fails.


----------



## Eclectic12 (Oct 20, 2010)

NorthernRaven said:


> humble_pie said:
> 
> 
> > ... And - as with the CIPF - in a global financial collapse, would Assuris even continue to function ... would even the CDIC continue to function ...
> ...


+1 ... if CDIC is useless, then likely the private version such as CIPF & Assuris would also be done. 

As has been noted in other threads, the private ones are far more dependent on the ability of other member institutions to pick up the slack. But as was seen in the Confederation Life wind up, other companies buying assets typically means the Assuris bill is dropping.


At the end of the day, my key point was there is more than just the selling insurance company to back the annuity.


AFAICT without digging into what Assuris can easily cover - it seems more likely that people are spreading around their annuity contracts to maximise coverage ... just like people worry about having too much on deposit at any one CDIC covered FI.


Cheeers


Assuris is designated by federal and provincial legislation as the compensation entity, although I don't think they have the sort of funding fallback to Treasury that CDIC does. They have $100 million floating around for immediate cleanups; anything beyond that they have to assess their members like CDIC would. If you have a giant insurance collapse this might not work, but you are back in asteroid territory and a government bailout if the entire industry fails.[/QUOTE]


----------

