A budget initiative of former Deputy Prime Minister and federal Finance Minister Chrystia Freeland, the Advanced Life Deferred Annuity (ALDA) became a reality when the Canada Revenue Agency (CRA) amended the tax rules to allow it as of Jan. 1, 2020.
The ALDA was designed to counter the risk of outliving one’s savings – longevity risk. On its website, the CRA describes it as a life annuity whose payment must begin before the end of the year in which the holder reaches age 85.
It can be offered anywhere in Canada, but insurers are not rushing to offer this product. Only Desjardins Insurance offers an ALDa product. It is available on an individual basis only. Customers can purchase it by transferring a lump sum from their Registered Retirement Savings Plan (RRSP) or Registered Retirement Income Fund (RRIF).
In Quebec, however, the offering of ALDA’s in group pension plans has stalled, as certain federal tax rules are incompatible with the Supplemental Pension Plans Act. Recognized last spring by both levels of government, this situation persists. Both Retraite Québec and the federal Department of Finance have informed Insurance Portal that there have since been no developments concerning ALDAs.
A member of a registered pension plan, a group registered pension plan or a deferred profit-sharing plan can purchase an ALDA by transferring a lump sum to it. However, no insurer has yet announced the availability of such a product.
Why so little interest?
Consumers and their financial advisors have been slow to demand ALDA. So, the industry has followed that slowness, and has not advertised nor promoted ALDA – Moshe Arye Milevsky
A tenured professor of finance at York University‘s Schulich School of Business, Moshe Arye Milevsky specializes in longevity issues. He has long advocated the use of deferred annuities. He believes that the lack of interest stems from the fact that “Consumers and their financial advisors have been slow to demand ALDA. So, the industry has followed that slowness and has not advertised nor promoted ALDA.”
He observes that life annuities are not widely marketed or promoted, as they are perceived as niche products, “and the ALDA is in the esoteric corner of the niche.”
Milevsky suggests that the product would be more attractive if it offered greater flexibility. He mentions riders (options) such as death benefits, return of premium or cost-of-living adjustments.
The current version of the ALDA reminds him of car insurance, with rates that are “independent of the car you drive or where you live.”
Pioneering role
On the other hand, Milevsky does not believe that a second player will emerge until the pioneer has demonstrated the benefits of its forerunner position.
Philippe-Olivier Dumas, Section Manager, Product Development, Guaranteed Investment Funds and Annuities, at Desjardins Group, expressed his satisfaction with the product’s reception in the market and with demand. “Since the launch at the beginning of December 2023, there has been a lot of media attention, and a great reception from our advisors and customers,” he said in an interview with Insurance Portal.
There were a lot of questions, but less action: people wanted to understand this new product – Philippe-Olivier Dumas
It was a slow start, according to Dumas. “There were a lot of questions, but less action: people wanted to understand this new product,” he explains.
However, Desjardins’ activities in the advanced life deferred annuity niche accelerated in the second and third quarters. “We had several sales cases, but the volumes are smaller than those for traditional life annuities,” he reports.
According to Dumas, this low transaction volume is part of the reason why no competitors have yet come forward.
Among the factors limiting transaction volume, he pointed out that the ALDA cap was $170,000 in 2024 on the amount that can be transferred into the ALDA. He also mentioned the limit on transfers to the ALDA, set at 25% of the individual’s registered plans.
On its website, the CRA explains that cumulative excess amounts in the ALDA are subject to a tax of 1% per month, at the end of each month in which they are left in the ALDA. “Still, the product meets needs that were not served by other annuity products,” says Dumas.
