ALDA: Personalized protection against outliving your savings

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Securing your senior years: Desjardins Insurance tackles longevity risk for a more stable financial future with advanced life deferred annuity

DESPITE FACING longer life expectancies, many Canadians may not have adjusted their retirement strategies to reflect this reality. Without proactive adjustments, retirees may risk either spending too cautiously and sacrificing their lifestyle, or running out of money. Advisors must shift their focus from merely chasing returns to smart risk management, guiding clients through retirement’s biggest pitfalls. On average, Canadians misjudge their life expectancy by almost four years which makes planning for a realistic life expectancy vital. It’s better to prepare for a longer life, ensure savings last, and potentially leave more money for loved ones than to face a shortfall.

Desjardins Insurance offers a wide range of life and health insurance and savings and investment solutions through our extensive distribution networks. More than five million Canadians are counting on our solid expertise and our people-focused approach at every stage of their lives. Choosing Desjardins Insurance means choosing Desjardins Group, the largest cooperative financial group in North America.

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ALDA benefits

Desjardins Insurance is the first insurer in Canada to offer ALDA – a market exclusive (Desjardins – Market Watch, November 2024)

“It’s not black-and-white,” Debas adds. “There are nuances, but we aim to select securities that meet our high standards for financial stability and ESG outcomes”

Deborah Debas, Desjardins, Wealth Management

In recognition of this gap, Desjardins Insurance is the first Canadian insurer to offer an Advanced Life Deferred Annuity (ALDA). For those nearing retirement, strategic solutions like ALDA can help secure a steady income stream in later years. In conversation with Wealth Professional, Philippe-Olivier Dumas, head of product development, guaranteed investment funds, and annuities at Desjardins Insurance, discussed why the ALDA is more than just a financial product – it’s a strategic tool that can help one plan for a secure retirement.

Currently there is a rare opportunity to secure attractive returns with annuities, particularly an ALDA. Despite some recent declines in short-term interest rates, longer-term rates remain elevated, making annuities an appealing choice. Dumas says, “Clients benefit from favorable conditions, especially if interest rates were to decline further.” For an ALDA, timing is especially crucial, due to their extended deferral period. By investing now and deferring payments up to age 85, clients can maximize the investment’s growth phase and secure better returns than would be possible if they waited. At a time when fewer people have the security of employer-provided pensions, the traditional “Set it and forget it” approach to retirement planning is no longer enough. While the primary audience for an ALDA includes pre-retirees and early retirees, the appeal of an ALDA extends beyond this group – anyone without a pension plan or facing uncertainty in their financial future can benefit. Factors such as health history and longevity expectations are crucial when considering an ALDA, and it’s also essential to assess whether there will be sufficient savings to cover lifestyle needs during the deferral period. But as long as those concerns are considered, an ALDA differentiates itself from traditional annuities by offering similar income levels at a fraction of the cost — a significant boon for investors. “It’s about targeting longevity risk more efficiently,” Dumas says, allowing clients to preserve more of their assets during their early retirement years.

An ALDA offer a “stop date” in financial planning, providing income security once the deferral period ends. That ability to defer payments up to age 85 allows for a strategic approach to income planning. Locking in financial security with a defined income start date simplifies planning by setting a clear point at which financial uncertainty ends, ensuring stable income regardless of market fluctuations. For example, a pre-retiree may choose an ALDA to take advantage of the long deferral period, while an older individual in a RRIF might use it to secure future income and reduce the

need for complex financial decisions in later life. “Even if someone is already in a RRIF,” says Dumas, “locking in for age 85 still makes sense. The ALDA provides flexibility and peace of mind for a variety of retirement situations.” The versatility of an ALDA makes it a flexible tool in advisors’ arsenals that can be integrated into a variety of financial strategies. Whether used in conjunction with government benefits like Old Age Security (OAS) or with other investments, an ALDA can allow clients to take on more risk with their assets during the deferral period. This approach provides a layer of stability; knowing that a guaranteed income awaits can give retirees the confidence to pursue higher-yield opportunities in the meantime. Dumas notes that “the ALDA adds an extra layer of security to retirement planning,” making it appealing to advisors who seek to diversify their clients’ income streams. Incorporating an ALDA alongside other retirement vehicles, such as RRIFs, can create a more resilient plan that balances immediate income needs with future security.

“Clients benefit from favorable conditions, especially if interest rates were to decline further”

Philippe-Olivier Dumas, Desjardins Insurance

Importantly, an ALDA purchased with Desjardins Insurance also aligns with a growing emphasis on responsible investing. Since launching responsible annuities in 2022, Desjardins Insurance has adhered to strict environmental, social, and governance (ESG) criteria in managing its annuity products. Deborah Debas, a senior responsible investment specialist at Desjardins, Wealth Management, explains that the company’s responsible annuity program has set a new standard by integrating ESG practices into the investment approach. “We

like to back up our claims with data,” she says. The Responsible Annuity Annual Report provides insight into how we manage investments differently, with a focus on sustainability.” The investments underlying the ALDA include fixed-income strategies such as government and corporate bonds, as well as infrastructure projects. Before selecting these securities, Desjardins Insurance conducts thorough financial and ESG evaluations. The company uses various frameworks to assess the risks and opportunities associated with each security. “It’s not black-and-white,” Debas adds. “There are nuances, but we aim to select securities that meet our high standards for financial stability and ESG outcomes.” A small portion of the portfolio is allocated to green bonds, which fund environmentally sustainable projects. This responsible approach goes beyond selecting suitable investments; Desjardins Insurance also engages directly with companies to encourage better ESG practices. “For example, we questioned a transportation company after fires and floods affected its infrastructure last year,” Debas says. “We wanted to understand how they manage climate-related risks.” This active stewardship ensures that the companies Desjardins Insurance invests in are held accountable for their impact, adding an extra layer of oversight and responsibility. “Clients can leave their money with Desjardins Insurance, knowing it’s being professionally managed according to strict ESG criteria. We also have access to institutional asset classes such as infrastructure investments that typically aren't available to retail investors,” says Dumas. This access to specialized asset classes and professional management enhances potential returns, and access to institutional pricing (pooling a large asset base) reduces the fees, further adding to the product’s appeal. With life expectancies increasing and ever-changing market conditions, ALDA are well-suited for a variety of retirement scenarios, offering the flexibility to adapt to individual needs. The guaranteed and stable income ensures retirees can enjoy the comfort of knowing their essential expenses will be met without the stress of ongoing financial decision-making. Backed by robust oversight and managed by a trusted institution like Desjardins Insurance, an ALDA allows individuals to focus on living their later years free from worry about market fluctuations or complex financial planning.

Woman's hand. putting coins in the piggy bank with coins

The timing advantage: Why locking in rates now makes sense

Addressing longevity risk: why a financial stop date matters

Published December 4, 2024

Only registered product that allows you to delay the start of payments of recorded amounts until age 85 at the latest

Regular guaranteed income for life, sheltered from market fluctuations

ALDA is a responsible annuity that meets strict environmental, social and governance criteria

Protection against longevity risk: avoids outliving savings

In Canada, retirement planning takes a crucial turn when an individual reaches age 71, as RRSPs must be converted. At this point, retirees face three main options: withdrawing the funds in a lump sum, transferring them into a RRIF, or purchasing an annuity. However, a full withdrawal means the entire amount becomes taxable income for that year, potentially resulting in a significant tax hit. Most retirees opt for a RRIF or a traditional annuity, which mandates annual minimum withdrawals that are taxed as income starting at age 71. This setup can lead to a higher tax burden and the accelerated drawdown of retirement savings. The ALDA offers a different approach, allowing retirees to defer the start of withdrawals until the end of the year they turn 85 on the portion of the plan used to purchase an ALDA. This extended deferral period provides a valuable opportunity for tax planning, enabling individuals to keep a portion of their registered funds sheltered from taxes for an additional 14 years. For those who don’t need immediate access to these funds, an ALDA can allow for greater control over when they start drawing income, offering both tax deferral and a more strategic approach to managing retirement assets.

Responsible investing: meeting high standards with an ALDA

Lower costs and tax efficiency

“Living well in retirement is the goal of all Canadians, but how prepared are we?” Canadian Institute of Actuaries, 2020 “Desjardins is the first financial institution in Canada to offer advanced life deferred annuities for individual savings,” Desjardins press release, 2023 Maximum of 25% of registered assets and lifetime dollar limit of $170,000 (2024). For more information, please see Annual report on responsible investment for responsible annuities, Desjardins Insurance report, 2024 Source: Desjardins Global Asset Management, December 31, 2023 Statistic Canada: data on life expectancy and deaths (Life Expectancy and Deaths Statistics), 2024 Desjardins Insurance refers to Desjardins Financial Security Life Assurance Company. Desjardins, Desjardins Insurance®, all trademarks containing the word Desjardins, as well as related logos are trademarks of the Fédération des caisses Desjardins du Québec, used under licence. All rights reserved.

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