Is the Longevity Pension Fund a cure for retirement income worries?
Taking on the challenge of providing retirement income for the vast army of people who dont have classical defined benefit pension plans, Purpose CEO Som Seif and his team appear to have found a way to offer at least some of the secret sauce of traditional DB pensions. According to Purposes documents, retirees biggest fear is: Will my money last?  Their LPF solution involves mortality credits that improve the odds that retirees who opt in will never run out of income before running out of life. Somewhat reminiscent of the classic tontine structure championed by famed finance professor Moshe Milevsky (see this MoneySense article from three years ago), the idea is for less fortunate retirees who die sooner than theyd like to subsidize those gifted with longevity. Retired actuary and retirement expert Malcolm Hamilton describes the LPF as quite an ambitious undertaking. Id say its partly variable annuity, part tontine and part mutual fund. Canadas financial industry has been much better at creating wealth-accumulation products than decumulation vehicles, Hamilton says, adding hes quite pleased theyre doing this and will watch with fascination as the experiment proceeds.  Hamilton cautioned that LPF is not a pension plan, which needs employer sponsors. There are no sponsors or employers here, just investors. This is a well-intentioned attempt to create a financial vehicle that provides longevity protection and risk management in an age when most elderly people will need to take investment risk.  Some 30 years ago, there would not have been a need for such a product, as interest rates were high enough to give retirees safe positive returns on GICs, CSBs or annuities. But in an era of government-sanctioned financial repression todays retirees are forced to take on more risk than they may be comfortable with. Still, Hamilton says that while this is a product for which there is a need, Its not a panacea. The investment risk can be managed, but not eliminated. If you dont take investment risk, you can rely on poor returns; but if you take investment risk you cannot rely on good returns.