The ICPP is designed to provide reliable retirement income for a member’s entire life. It’s one of the plan’s cornerstones that makes us better than typical Defined Contribution (DC) pension plans.

The threat of outliving one’s savings is common among Canadian retirees. This longevity risk is certainly borne by most members of Defined Contribution (DC) arrangements. Traditionally, the only way for these pensioners to enjoy guaranteed lifetime retirement income was through the purchase of an insured annuity.

An insured annuity is a financial product that retirees can transfer some or all of their pension savings to in order to receive regular, guaranteed payments until death. Unfortunately, this guarantee is very expensive. The average retiree who purchases an insured annuity can expect to forfeit as much as 20-30% of their pension savings to pay for the promise of predictable lifetime income, with no future upside. In other words, the pension you receive from an insured annuity today is the same one you will receive 20 years later.

Fortunately, a new more affordable type of lifetime annuity is available through the ICPP. The Variable Payment Life Annuity (VPLA) was recently proclaimed into law in Canada as a way to improve pension access and reduce longevity risks for Canadian workers.

Within the VPLA framework, investment and mortality risks are pooled amongst all ICPP retirees, rather than insured at the individual level. This cooperative approach makes the VPLA significantly less expensive, while still delivering predictable lifetime retirement income. And, without an insurance company taking large profits, the VPLA will generally pay out a monthly pension substantially greater (20-30% greater) than a traditional insured annuity. There is also future upside potential.

Using the VPLA decumulation strategy means ICPP retirees don’t have to worry about making smart investments and carefully managing withdrawal levels during their retirement. Instead, they simply elect to transfer their pension assets to the VPLA at retirement and then enjoy a regular monthly pension for the rest of their lives.

In this way, the ICPP can provide a lifetime pension that is similar to the sought-after Defined Benefit (DB) pensions enjoyed by many public sector workers. Ultimately, the VPLA means peace of mind for our members and freedom to enjoy their retirement years.

In our next blog, we will explain more about how the VPLA manages to out-perform an insured annuity to provide superior pension outcomes with no added risk.