What’s New with Variable Annuities (GMWB):Q3-2013 Update
In 2006, I attended an advisor conference and a specific presentation about a new retirement product coming down the pipeline aimed at both retirees and those within 15 years of retirement. Technically it’s called a variable annuity but is more commonly referred to as a GMWB or Guaranteed Minimum Withdrawal Benefit. The product was developed because many employers are moving away from defined benefit (DB) to defined contribution (DC) pension plans to eliminate their liability for employee’s pensions in retirement. With a defined contribution(DC) plan the employer makes contributions to the employee’s plan but the employee is responsible for investment selection and subsequent performance and long term returns i.e. the employee takes on the risk. The GMWB is essentially a personal defined pension (DB) plan that defines the minimum guaranteed income an investor will receive when they decide to start taking income. The GMWB was never meant to be used for your complete retirement income plan but should be a consideration for any gap in income that exists between “basic income needs” and other guaranteed sources of income such as CPP or OAS.
Q3 2013 Update
The very first GMWB to launch in Canada was by Manulife and was called IncomePlus. It has went through several iterations over the years but as of October 28th, 2013 it will no longer be offered and is being replaced by a different product (more on that in a future article). The main reason is that In general, GMWBs have fallen out of favour as the payout rates that were offered several years ago, namely 5% payout were reduced to 4%. at age 65. Additionally, the fees to operate these products have increased.
The existing Manulife IncomePlus contracts owned by investors remain in place going forward, so if you have one there isn’t anything to worry about. Your guarantees in the contracts continue.
Other companies that still offer new GMWBs are as follows.
- Empire Life Class Plus 2
- Canada Life with Lifetime Income Benefit which is offered as a rider to their segregated fund products.
Prior articles about GMWBs
- Reduce Stress with a Life Annuity in your Retirement Plan
As with any investment, do your due diligence and work with a qualified advisor that you trust. In my practice, I am able to model both current retirement assets and GMWBs to show the “pros and cons” of using them and help determine the optimal retirement income solution.
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