This new mutual fund works like a pension to help Canadians live with confidence during retirement

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When it comes to retirement, the concern most Canadians have is ‘Will the money I’ve saved last long enough?’

It’s understandable given increasing life expectancies alongside the dwindling number of defined benefit (DB) pensions that guarantee income for life in retirement. Only 37 per cent of Canadian workers were covered by a pension plan in 2017, down from 41 per cent a decade earlier, according to the latest Statistics Canada data. Of those, it says 67 per cent had a DB plan down from about 85 per cent two decades earlier.

Combine that with ultra-low interest rates that have left bonds (once considered a staple in retirement portfolios) unable to keep up with rising inflation — it’s no wonder Canadians are worried.

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A solution for this retirement-savings conundrum has just hit the market with a goal to forever change the way Canadians save for their non-working life: The Longevity Pension Fund — the world’s first mutual fund to incorporate risk pooling mechanics and provide income for life to retirees — is a ground-breaking solution launched by Purpose Investments and created by Canadian investment industry pioneer Som Seif. The low-fee mutual fund helps investors build savings in their working years, then is structured to pay out a monthly return for the rest of a person’s life once retired.

The fund is also relatively inexpensive for a mutual fund, with a management fee of 0.60 per cent for the Series F, which is available to investors through their advisors or direct investment accounts.

Som Seif, founder and CEO of Purpose Investments Inc.

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It’s a way for Canadians without a pension, or with an inadequate one, to generate income for life, says Mr. Seif, chief executive officer and founder of Purpose Investments Inc.

“Income security in retirement is one of the greatest social problems in Canada today,” Mr. Seif says. “Many Canadians don’t have a solution for how to handle their money when they get into their post-working life. We wanted to offer one.”

A DB-like pension solution

The first-of-its-kind fund offers regular income distributions, similar to annuities and DB pensions, while generating higher-income payments than traditional products. A major difference with the Longevity Pension Fund is that it provides the liquidity and transparency typical of mutual funds and the flexibility to invest more or redeem unpaid capital — the initial investment less distributions received to date — at any time.

It’s also portable: Fund holders can move it from one employer workplace savings program to another if they change jobs.

Mr. Seif, who has earned a reputation as an investment industry innovator — including pioneering the build out of exchange-traded funds (ETFs) in Canada — describes Longevity as “revolutionary” for those facing daunting retirement challenges.

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“Longevity is ideal for every Canadian that is in retirement or near-retirement, but the solution we created is actually a holistic pension solution that is useful for Canadians at any age,” Mr. Seif says. “We have allowed people to create their own pension fund with a mutual fund vehicle.”

Like a pension fund for everyone

The Longevity Fund works like a traditional pension fund by pooling investors, with an aim to create a predictable stream of income for retirees. Purpose estimates the fund will target an initial lifetime income payment of 6.15 per cent annually for individuals 65 years of age and older, with opportunities for increases over time.

“We have simply taken a mutual fund and structured it using similar principles like other corporate pension plans or iconic ones like CPP [Canada Pension Plan] or OMERS [Ontario Municipal Employees Retirement System] and have made it available to everyone,” Mr. Seif explains.

Unlike a pension plan or insurance annuity, however, Longevity’s mutual fund will provide Canadians with greater flexibility, with the ability for investors to redeem their unpaid capital at anytime.

“You get the lifetime income stream benefits of a pension plan, but you also get the benefit of liquidity so you can withdraw your unpaid capital at any time if you want to,” Mr. Seif says.

While the fund’s real innovation is its income-for-life decumulation feature, which kicks in when an investor turns age 65, the fund also features an accumulation class for younger investors socking money away pre-retirement.

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A potential substitute for annuities

While Mr. Seif is a big proponent of insurance annuities as a part of a well-structured retirement plan, he believes they are less attractive to retirees because they demand people lock in their money for a long time. A big reason annuities aren’t used often is that people can’t withdraw from them if their life circumstances change and they need the money.

“A key strength of our product is you can solve your long-time income needs, but if for any reason you need to reverse that decision, you can redeem unpaid capital,” he says. “That’s a powerful difference that we offer for those seeking lifetime income.”

Another feature of Longevity’s mutual fund structure is that it can be put in tax-sheltered investments such as registered retirement savings plans (RRSPs) and tax-free savings (TFSAs) accounts, up to individual contribution limits. It can also be held in non-registered investment accounts.

“I think Longevity is as efficient in registered accounts as non-registered ones,” Mr. Seif says, also noting that annuities can’t be held in TFSAs.

“With registered accounts, it is always great to accumulate capital on a tax-deferred basis, but for other people with non-registered accounts, they want to get that income directly without having to worry about the withdrawals and their tax implications.”

Providing greater security in retirement

For Canadians seeking sustainable income in today’s uncertain investment climate, the Longevity Pension Fund offers an unmatched blend of pension-like payouts of traditional DB plans and mutual fund industry flexibility.

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“It’s really great for those who are concerned with making sure that they never run out of money in their life, especially in that retirement world, where you wake up every morning and don’t have a paycheque coming in,” Mr. Seif says. “We are now creating an environment where every retired Canadian can have a paycheque coming in.”

What it is

The world’s first mutual fund to incorporate longevity risk pooling and provide income for life to retirees.

How it works

The low-fee mutual fund helps investors build savings in their working years, and once each investor is retired, will then pay monthly income for the rest of each investor’s life.

The benefits

The fund offers regular income distributions, like annuities and defined benefit pensions, while generating higher-income payments than traditional products.

The fee

Management fee of 0.60 per cent for the Series F, which is available to investors through their advisors.

Commissions, trailing commissions, management fees and expenses all may be associated with the Investment fund. Always read the prospectus and talk to your advisor before investing. Investments in mutual funds are not guaranteed, and the fund’s value may change frequently. Income and distribution levels may increase or decrease from time to time and are not guaranteed. Past performance may not be repeated.


Advertising feature produced by Globe Content Studio with Purpose Investments. The Globe’s editorial department was not involved.

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