Canada's Variable Annuities

Guaranteed Retirement Income For Life

In Canada in October 2006 Manulife Financial was the first Canadian life insurance company to launch a variable annuity with guaranteed minimum lifetime withdrawal benefits designed to provide retirement income for life. Since 2006 several other Canadian insurers have launched their own versions of what is called Guaranteed Lifetime Withdrawal Benefits. Among the companies offering these plans are Manulife Financial, Canada Life, Empire Life, Industrial Alliance Pacific, Sun Life, Transamerica Life and Desjardins Financial.

For my own personal reasons, only Transamerica Life, Canada Life and Desjardins Financial plans will be discussed here. This kind of lifetime income benefit works best for people who do not already have guaranteed lifetime income. It is suggested that only a portion of your retirement income be allocated to such a plan. You should keep some funds that are easily accessable for emergencies since a variable annuity does not allow excess withdrawals without penalty.

Accumulation Phase:

A broad range of segregated funds to help you grow your money are an integral part of any variable annuity. Any of the segregated funds authorized for purchase in your Canada Life, Transamerica Life or Desjardins Financial variable annuity are 100% fully guaranteed against loss. If the funds you choose, grow as anticipated, their increased value will be locked-in at various times. This lock-in of gains will occur up until maturity of your investment. No lock-ins will be triggered in a year in which values have not increased. Should there be a decline in market conditions, your investment will not be affected in any way and you will not loose value.

Annual Bonuses

Transamerica Life provides a full bonus in the startup year and every year thereafter in which no withdrawals are made. In the year in which you start such a plan, Transamerica Life is the only company providing a full bonus no matter at what time of year your plan is started.

Canada Life provides a full bonus on the anniversary of your purchase date.

Desjardins Financial provides a prorated bonus in the first year depending upon what time of the year your plan is started. Most insurance companies prorate the first year bonus so that only a partial bonus is paid depending on which month the plan is started. Please note that the bonuses offered to variable annuity holders are referred to as notional bonuses because they are paid with the understanding that the holder does not cash surrender their plan early. Variable annuities are meant to provide a level stream of income. If the holder withdraws a lump sum of money or totally cash surrenders the plan before maturity, the bonuses do not become part of the surrender value.

Annual Bonuses increase your eligible guaranteed lifetime income amount.

So, if your plan is with Transamerica Life, no matter what time of the year that you make your initial deposit and do not make any withdrawals, you are entitled to a full bonus based on your deposit amount, on December 31 of that year. Generally this bonus will be repeated on December 31st of each of the following years in which you do not make any withdrawals. Bonuses for Transamerica Life, Canada Life and Desjardins Financial are 5% per year.

Protects your principal

No matter which company you choose, you can choose from a broad selection of segregated funds [segregated funds are like mutual funds but with life insured guarantees] to grow your money. These funds fluctuate with market conditions and as you know, the market goes up and down. However, your investment in a variable annuity is 100% guaranteed against loss during the life of your plan, no matter what happens to the value of the segregated funds you have chosen.

Lock-in of market gains:

Increase your lifetime income with income resets. Market gains are automatically locked in on the third anniversary of your date of purchase. This guarantees savings and ensures guaranteed retirement income can actually increase over time to help offset the effects of inflation. Your lifetime income will not decrease regardless of how your segregated funds perform. Income resets on a growing market are available for the life of your plan. Once your guaranteed withdrawal balance increases, it is guaranteed for life regardless of any future down markets, assuming no excess withdrawals are made.

The payout phase:

When you are ready, normally, after age 65, a variable annuity turns into a guaranteed payout product where a level percentage of the "Guaranteed Withdrawal Balance" can be withdrawn each year. Note that, even if the segregated funds have a negative performance over some of the previous years, payout is guaranteed for life based on the "Guaranteed Withdrawal Balance". During the payout phase of this investment, the tri-annual reset lock-ins continue and if there is continued growth, your "Guaranteed Withdrawal Balance" grows and your payout increases. There is no down side. Even if markets have a major downturn, you are guaranteed to receive income based on the highest locked-in value of your plan. The yearly payout for life is guaranteed not to decrease but it can increase if investment value increases.

If your investment is a registered retirement savings plan [RRSP] then you are obligated to convert it into a registered retirement income fund [RRIF] at your age 71. A RRIF requires you to take minimum annual payments which might exceed the guaranteed minimum withdrawal built into your variable annuity. This will not affect your guaranteed lifetime payouts. In each calendar year, you may withdraw the legislative RRIF minimum or the lifetime income amount, whichever is the higher.

Recommended Plans:

Transamerica Life - 5 For Life

• qualifying start age is between the ages of 18 and 80.
• Minimum deposit of $25,000.
• Multiple contracts of $25,000 allowed.
• Annual Notional Bonus 5% at the end of each calendar year end while no withdrawals are made. Not prorated in first year.
• Lock-in of gains every 3rd year on anniversary of purchase date.
• Lifetime level withdrawals can start as early as age 65.

Canada Life - Lifetime Income Benefit [rider on select segregated funds]

• qualifying start age is between the ages of 50 and 90.
• Minimum depost of $25,000.
• Multiple contracts of $25,000 allowed.
• Annual Notional Bonus 5% on each anniversary of purchase date while no withdrawals are made .
• Lock-in of gains every 3rd year on anniversary of purchase date.
• Lifetime level withdrawals can start as early as age 50.

Desjardins Financial Life - Helios

• No minimum qualifying age to start. Must be started before age 80.
• Minimum depost of $5,000.
• Multiple contracts not allowed.
• Annual Notional Bonus 5% each calendar year end while no withdrawals are made. Prorated in first year.
• Lock-in of gains every 3rd year on anniversary of purchase date.
• Lifetime level withdrawals can start as early as age 50.

Further Information:

Contact John Beaton via the contact information provided below.

Copyright © 2001 - 2011 Annuity Broker Services
All rights reserved.
This web site designed & maintained by The Dogwood Mall