Or as US retirement guru Wade Pfau recently put it: “A retirement income plan should be based on planning for life, not planning for death.” The blog recently highlighted this quote.
Retirement is usually about planning for unexpected longevity, which is commonly exacerbated by inflation. After all, a 65-year-old Canadian woman can expect to live to 87 – but she has an 11% likelihood of living to 100.
This fact was cited by Fraser Stark, president of the Longevity Retirement Platform at Toronto-based Purpose Investments Inc., in a September presentation to the Retirement Club that we described last summer. Stark’s presentation was compelling enough that I made a decision to take a position a portion of my recently launched RRIF within the Purpose Longevity Pension Fund (LPF). A version of Stark’s presentation could also be available on YouTubeor get the highlights from the Purpose brochure.
Compare the perfect RRSP rates in Canada
Stark confirms that LPF, launched in 2021, is currently the one retail mutual fund or ETF offering longevity-protected income in Canada. Note that LPF shouldn’t be an ETF but a conventional mutual fund. The goal is to generate a lifetime retirement income; To this end, the corporate has created a “unique structure to pool longevity risks.”
This reflects what noted finance professor Moshe Milevsky has long known as “Tontine thinking.” Check out my 2022 Retired Money column after Guardian Capital LP announced three latest tontine products under the GuardPath brand. However, a yr ago Guardian closed the fundshas effectively exited the tontine business. Apparently it’s an uphill battle in comparison with annuities.
Here is the one complete list the financial advisors and full-service brokers who offer this. Included on an unsolicited basis are full-service brokers (and/or their discount brokerage units) from major banks, including Bank of Montreal, National Bank and, most recently, Royal Bank. Among the numerous independent firms offering it are Questrade and Qtrade. Additionally, iA Financial allows investments in LPF on an unsolicited basis, in response to Stark.
Imitation of defined profit pensions
Purpose doesn’t use the term “tontine” to explain LPF, but goals to do what traditional employer-sponsored defined profit (DB) pensions do: in effect, those that die early subsidize the lucky few who live longer than expected.
LPF combats the dreaded problem of inflation by aiming to regularly increase distribution levels over time. It recently announced it could increase LPF distributions for many age cohorts by 3% in 2026, following the same increase last yr.
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This is how the actuaries at Purpose describe LPF:
“The Longevity Pension Fund is the world’s first mutual fund to provide lifetime income by incorporating longevity risk pooling, a concept similar to that used by defined benefit pension plans and lifetime annuities to provide lifetime income.”
The purpose is for LPF to work alongside pension schemes for some pensioners (see my last column on why pension schemes aren’t as popular as some think they needs to be). The LPF shouldn’t be registered as a pension, but is known as such since it is structured to offer income for all times, regardless of how long you reside. It will likely be offered as a mutual fund moderately than an ETF since it shouldn’t be designed for trading, Stark said a podcast shortly after takeoff.
Age is a giant variable. Purpose created two classes of the fund: an “accumulation” class for people under 65 and a “decumulation” class for people 65 and over. Once you switch 80, you’ll be able to not buy it. LPF guarantees lifetime monthly payments, however the structure is flexible enough to permit for either repayments or additional investment within the product – something traditional life annuities don’t typically offer. If you turn from the buildup to the decumulation product on the age of 65, the transfer is freed from capital gains tax consequences.
The booklet describes six age cohorts, 1945 to 1947, 1948 to 1950, etc., ending in 1960. The return for the oldest cohort in September 2025 is reported to be 8.81%, while for the 1960 cohort it drops to five.81%. My own 1951-1953 cohort has a return of seven.24%.
How does this come about? Aside from mortality credits, capital is invested like all broadly diversified asset allocation fund. The long-term strategic asset allocation is about at 49% equities, 41% fixed income and 10% alternatives. As of September 30, Purpose lists 38.65% in fixed income securities, 43.86% in equities, 12.09% in alternative securities and 4.59% in money or equivalents. The geographical breakdown is 54.27% Canada, 30.31% United States, 10.84% international/emerging markets and the identical 4.59% in money. MER for the Class F fund (where most investors are situated) is 0.60%.
Stark said LPF has raised $18 million since its launch, with 500 investors in the buildup or decumulation class. He also referred me to the recently published one actuarial review on LPF.
Longevity Income Instruments within the USA
While LPF (and previously Guardian) are, to my knowledge, the 2 essential providers of longevity products in Canada, several products within the United States attempt to handle the identical problem in alternative ways. Just a few weeks ago I created a roundup of the highest US offerings by contacting various US and Canadian pension experts via Featured.com and LinkedIn. The resulting blog includes products equivalent to Vanguard Target Retirement Income Fund, Fidelity Strategic Advisors Core Income Fund, Stone ridge LifeX Longevity Income ETFs and others.
Currently, Purpose appears to be alone on this space in Canada, excluding fixed life annuities offered by insurance firms. The US market is different due to variable annuities with income options.
