Guardian introduces ‘modern tontine’ for retirement planning



Canadians approaching retirement age have a new type of investment product available that mimics aspects of annuities and defined-benefit (DB) pension plans and could gain popularity as people live longer.

Tontines, which have existed for centuries as “last-person-standing” investment pools in which surviving members inherit the holdings of members who pass away, are arriving in a modernized format from Toronto-based Guardian Capital LP as three new mutual funds branded GuardPath Longevity Solutions, which launched on Wednesday.

Toronto-based Purpose Investments Inc. was the first to bring the concept to Canada in June, 2021, with the launch of its Longevity Pension Fund, although Guardian is the first to reference the tontine in its products explicitly.

According to Moshe Milevsky, a finance professor at York University’s Schulich School of Business who worked with Guardian to design the GuardPath lineup, modern tontines are “very, very different” from the historical version that dates back more than 400 years.

“There is some distaste for the idea of when people die other people benefit … but the concept makes a lot of sense,” he says. “The implementation in the 17th and 18th century left something to be desired.”

A key update from traditional tontines built into GuardPath Modern Tontine 2042 Trust is that only investors in a specific age group – those born between 1957 and 1961 – are eligible to participate. That’s because the fund will mature at the end of 2042 “and everybody who is still alive at the end of that 20-year period shares in the [net asset value] of the fund at that time,” says Barry Gordon, managing director and head of Canadian retail asset management at Guardian.

According to the actuarial tables Guardian used to structure the trust, Mr. Gordon says “approximately half of the pool would be expected to still be alive at that time.”

The other two products in the GuardPath lineup are intended for those who are unable or unwilling to wait two decades to realize their potential returns. GuardPath Managed Decumulation 2042 Fund promises steady cash flow over the 20-year life of the fund or until the death of each unitholder – whichever comes sooner – and the Hybrid Tontine Series offers both income and payouts to surviving unitholders when the fund matures.

Mr. Milevsky says actuaries will recognize the modern tontine structure “as a temporary life annuity” in his latest book, How to Build a Modern Tontine.

“The fund might not promise longevity insurance, per se, or income for the rest of your life, or money that you can’t outlive,” he writes, “but it would certainly include generous longevity credits.”

Fraser Stark, president of the Longevity Retirement Platform at Purpose, says Longevity Pension Fund functions “the same way that a defined-benefit pension plan decumulates the asset that someone saved up over their lifetime.”

In the same way that many DB pension plans will cease payments upon the death of a member, regardless of how long that member received those payments (i.e. whether death occurs at age 66 or 96), both the Purpose and Guardian products make similar use of longevity credits.

Uptake of the Purpose product has been limited so far, but Mr. Stark says that was expected.

“We knew that an innovation of this magnitude was going to take time to work its way through the system and we are still not available at the moment at a lot of dealers,” he says, noting Bank of Montreal is the only one of Canada’s Big Five banks that has made the Longevity Pension Fund available to its advisers.

Some dealers were also wary of approving funds in which there was only one product available, Mr. Stark says, but having the Guardian lineup now available as well “should demonstrate that this is now a multiproduct space.”

The “very morbid” optics issue for people “that they’re benefiting off of other people’s deaths and simultaneously other people are benefiting off of their own deaths” is another reason for the limited pickup of tontines in Canada thus far, says Jason Pereira, partner and senior financial consultant at Woodgate Financial Inc., a financial planning firm under the IPC Securities Corp. umbrella in Toronto.

Despite the optics, he echoes Mr. Stark’s point and says the reality of the new tontines coming to Canada are no different than long-existing major DB pension funds.

“This is an important development in retirement income planning, a very important one,” Mr. Pereira says. “The challenge, though, is there is no mathematical framework currently for how you combine [tontines] with traditional portfolios and annuities to increase your probability of success.

“This is something new and advisers, in general, are not very well trained on probabilistic termination of outcome when it comes to life expectancy,” he says. “That’s actuarial science.”

Guardian’s Mr. Gordon says the GuardPath lineup, with its three products, offers “a more flexible, user-friendly” option for advisors than the Purpose product.

“I believe we have had the opportunity to observe their experience and hopefully address some of the concerns that the marketplace may have,” he says.

While giving “credit where credit is due” to Purpose for “opening the door” to tontines in Canada, Mr. Milevsky says “Guardian is opening the door much wider.”

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