![\"\"](\"https:\/\/www.guardiancapital.com/investmentsolutions\/wp-content\/uploads\/2022\/09\/tgam_Logo.png\"){kind=logo}
<\/p>\n<\/p>\n
JAMESON BERKOW GLOBE ADVISOR REPORTER<\/strong><\/p>\n PUBLISHED SEPTEMBER 7, 2022<\/strong><\/p>\n 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.<\/p>\n Tontines, which have existed for centuries as \u201clast-person-standing\u201d 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.<\/p>\n 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.<\/p>\n According to Moshe Milevsky, a finance professor at York University\u2019s Schulich School of Business who worked with Guardian to design the GuardPath lineup, modern tontines are \u201cvery, very different\u201d from the historical version that dates back more than 400 years.<\/p>\n \u201cThere is some distaste for the idea of when people die other people benefit \u2026 but the concept makes a lot of sense,\u201d he says. \u201cThe implementation in the 17th and 18th century left something to be desired.\u201d<\/p>\n A key update from traditional tontines built into GuardPath Modern Tontine 2042 Trust is that only investors in a specific age group \u2013 those born between 1957 and 1961 \u2013 are eligible to participate. That\u2019s because the fund will mature at the end of 2042 \u201cand 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,\u201d says Barry Gordon, managing director and head of Canadian retail asset management at Guardian.<\/p>\n According to the actuarial tables Guardian used to structure the trust, Mr. Gordon says \u201capproximately half of the pool would be expected to still be alive at that time.\u201d<\/p>\n 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 \u2013 whichever comes sooner \u2013 and the Hybrid Tontine Series offers both income and payouts to surviving unitholders when the fund matures.<\/p>\n Mr. Milevsky says actuaries will recognize the modern tontine structure \u201cas a temporary life annuity\u201d in his latest book, How to Build a Modern Tontine.<\/p>\n \u201cThe fund might not promise longevity insurance, per se, or income for the rest of your life, or money that you can\u2019t outlive,\u201d he writes, \u201cbut it would certainly include generous longevity credits.\u201d<\/p>\n Fraser Stark, president of the Longevity Retirement Platform at Purpose, says Longevity Pension Fund functions \u201cthe same way that a defined-benefit pension plan decumulates the asset that someone saved up over their lifetime.\u201d<\/p>\n 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.<\/p>\n Uptake of the Purpose product has been limited so far, but Mr. Stark says that was expected.<\/p>\n \u201cWe 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,\u201d he says, noting Bank of Montreal is the only one of Canada\u2019s Big Five banks that has made the Longevity Pension Fund available to its advisers.<\/p>\n 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 \u201cshould demonstrate that this is now a multiproduct space.\u201d<\/p>\n The \u201cvery morbid\u201d optics issue for people \u201cthat they\u2019re benefiting off of other people\u2019s deaths and simultaneously other people are benefiting off of their own deaths\u201d 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.<\/p>\n Despite the optics, he echoes Mr. Stark\u2019s point and says the reality of the new tontines coming to Canada are no different than long-existing major DB pension funds.<\/p>\n \u201cThis is an important development in retirement income planning, a very important one,\u201d Mr. Pereira says. \u201cThe 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.<\/p>\n \u201cThis is something new and advisers, in general, are not very well trained on probabilistic termination of outcome when it comes to life expectancy,\u201d he says. \u201cThat\u2019s actuarial science.\u201d<\/p>\n Guardian\u2019s Mr. Gordon says the GuardPath lineup, with its three products, offers \u201ca more flexible, user-friendly\u201d option for advisors than the Purpose product.<\/p>\n \u201cI believe we have had the opportunity to observe their experience and hopefully address some of the concerns that the marketplace may have,\u201d he says.<\/p>\n While giving \u201ccredit where credit is due\u201d to Purpose for \u201copening the door\u201d to tontines in Canada, Mr. Milevsky says \u201cGuardian is opening the door much wider.\u201d<\/p>\n