Pension leaders explore why annuity uptake remains low despite favourable rates and what variable annuities, partial annuitization could change for retirees
Hundreds of billions of dollars sit in capital accumulation plans across Canada, held by people approaching or already in retirement. Yet, as several industry experts say, there’s still no clear path to convert those savings into reliable income.
Meanwhile, the gap between accumulation and decumulation is widening, and the stakes are rising alongside the country's aging demographics.
“Currently in Japan, 1 in 6 persons is aged over 75. We’ll be there in 20 years in Canada. This means there's going to be a lot of needs for this aging population. There's going to be costs paid directly or indirectly through taxes,” said Marianne Assaf, partner and head of the savings practice at Normandin Beaudry at one of the Association of Canadian Pension Management (ACPM) sessions this week around decumulation.
“There are hundreds of billions in capital accumulation plans in Canada, and more than $300 billion are held by those aged above 55. We have a responsibility towards the Canadian population,” she added.
Christian Rousseau, vice president, policies and programs at Retraite Québec, echoed the urgency with Quebec-specific figures.
"Today, two-thirds of citizens over 65 have very little or no DB pensions. If we focus specifically on current private sector workers, this proportion goes up to 85 per cent, and we don’t expect that trend to reverse," he said.
New VPLA regulations test the market's appetite
According to Rousseau, outside traditional defined benefit arrangements, Quebec alone holds more than $500 billion in retirement savings, a figure that exceeds total DB assets across both the private and public sectors in the province.
Rousseau emphasized that decumulation is not a niche concern for his organization.
"For Retraite Québec, it is not a peripheral issue, it's a central issue," he said, adding that Quebec enacted regulations at the start of 2025 enabling variable payment life annuities (VPLAs), and the province is developing a web-based simulation tool for citizens to model decumulation strategies.
Still, Rousseau acknowledged the limits of regulation alone.
"It might take time to change mentalities for individual mentalities in the financial planning world and the industry,” he said.
Rethinking RRIF withdrawals and the annuity layer
Assaf framed the current decumulation landscape as a choice between two imperfect options. With a registered retirement income fund (RRIF), retirees keep control of their assets but shoulder all the investment and longevity risk themselves. Meanwhile, with a life annuity, that risk transfers to an insurer in exchange for a fixed income stream, but the retiree gives up access to their capital. The VPLA, she argued, sits between the two.
“The dynamic pension, or the VPLA, is the best of both worlds. It’s guaranteed income for life through asset pooling, access to the equity risk premium is maintained, and therefore the member can expect a higher pension and retirement income for life. No need to keep any aside just in case,” she said.
Assaf proposed an alternative RRIF withdrawal schedule that would allow retirees to draw above the legislated minimums, with the goal of sustaining income through to age 95. The higher rates front-load income during the early years of retirement, when expenses tend to be steepest.
At age 65, the result is a nearly 40 per cent increase in first-year withdrawals - pushing annual income on $100,000 of accumulated capital from $4,000 to $5,500. While the effect is most pronounced before age 80, she noted these projections assume a stable 4 per cent return, which markets rarely deliver in practice.
That volatility is where annuities enter the picture. When an insured annuity is added to the mix, income no longer tracks market swings.
"The model works because of longevity risk pooling with annuities," Assaf said, adding most 65-year-olds won’t live to 95, and that mortality pooling is what makes the math work, even though the concept can be a hard sell.
"The message is simple: rates are high, so it's a good time to buy annuities," she said.
Why retirees aren't buying annuities
Andrée-Anne Bourgeois, vice-president of pricing, actuarial and product strategy at Desjardins acknowledged that on paper, conditions have never been better for annuities. DB coverage is shrinking, the population is aging, retirement assets are growing, and interest rates have pushed annuity payouts to levels not seen in years.
But theory and practice aren’t exactly aligned, she noted, particularly as new premiums flowing into annuities are barely keeping pace with payouts, leaving the market flat despite favourable demographics. According to Bourgeois, at Desjardins, less than 1 per cent of decumulation assets go toward annuities.
The barriers are behavioural as much as structural, said Bourgeois, noting that retirees fear irreversibility, worry about dying early and leaving money to an insurer, and face a distribution system that does little to promote annuities.
"If clients don't ask for it, advisors will just bring them up proactively," she said, adding that compensation models for individual advisors tend to favour retaining assets in portfolios over recommending annuity purchases.
"Yes, annuities may solve a rational problem, but the retirement decisions are rarely based purely on rational analysis. They're often based on behavior and emotion and perception," she added.
Reframing annuities as longevity protection
As one way forward, Bourgeois pointed to partial annuitization - committing 25 per cent to 30 per cent of savings to cover fixed retirement expenses while leaving the rest invested for discretionary spending. Joint and survivor annuities already account for 40 per cent to 45 per cent of Desjardins' annuity sales, suggesting product design matters when it addresses specific fears.
But the bigger shift, she argued, is philosophical.
“Retirement planning should really start with people and not with product. We need to understand that retirement is no longer a single event when all the decisions have to be made. It's a journey," she said. "As an industry, we have to do something. We can’t just let it go and stay passive.”
