EQUITABLE LIFE GIAs. Savings and Retirement. Advisor Guide

Transcription

1 EQUITABLE LIFE GIAs Savings and Retirement Advisor Guide

2 ABOUT EQUITABLE LIFE OF CANADA WE ARE GROWING STRONG AS A MUTUAL COMPANY As a mutual company, Equitable Life competes well within our industry and services our chosen markets as a strong, progressive company. We are generating sufficient earnings and capital to meet our future growth targets and technology requirements. Our surplus, assets and total business in force all continue to grow steadily. Equitable Life s Minimum Continuing Capital and Surplus Requirement (MCCSR) ratio is well in excess of the minimum capital requirement prescribed by the Office of the Superintendent of Financial Institutions Canada (OSFI). OSFI uses this measure to monitor all life insurers to ensure that their surpluses are sufficient to support their obligations to policyholders. Our mid-size as an important advantage In addition to our mutual structure, Equitable Life s medium size can be an important advantage: As a mid-sized company, we are able to be responsive and flexible when it comes to developing products and services, and delivering them to policyholders in selected target markets. A significant number of independent advisors prefer to deal with smaller, successful companies because we take more time to understand their business and their clients needs. These efforts go a long way toward building long-lasting, mutually rewarding partnerships. Many consumers believe that a medium-sized company delivers more of a personal touch when it comes to service. At Equitable Life, that personal touch is not only an attitude; it s a reality. Our ultimate goal is to be recognized in the industry as an efficient, easy to do business with company. Embracing the future as a mutual mid-sized company Industry analysts have predicted that medium-sized mutual life insurers can thrive among the giants of our industry if they are financially strong, strategically positioned, flexible, and have the ability to build upon inherent strengths in terms of target markets and wellestablished distribution systems. This is the basis of our corporate vision: A team of quality employees and independent producers focused on delivering competitive products and superior service to target markets applying technology and continuous improvement consistent profit, financial strength and enduring stability. All combined, these qualities distinguish Equitable Life as one of the largest mutual life insurance companies in Canada! ABOUT THIS GUIDE This guide provides a detailed overview of Equitable Life s Guaranteed Interest Accounts, including product features and benefits. The Guaranteed Interest Account contract provides full product details and will govern in all cases. Questions? Equitable Life is committed to providing you with the service you need to support your business. If you have questions or require additional information, please contact your Equitable Life Regional Investment Sales Manager.

3 TABLE OF CONTENTS Guaranteed Interest Account 1 Overview Benefits of Equitable Life GIAs 1 Investment Options 2 Daily Interest Account Guaranteed and Term Deposit Accounts Product Features 3 Maximum Issue and Deposit Age 3 Withdrawals/Income Payment Options 4 Lump Sum or Unscheduled Withdrawals RRIF and LIF Income Payment Options Market Value Adjustments Taxation 6 Non-Registered Plans Tax Free Savings Accounts Registered Plans Spousal Plans Statements and Client Reporting 6 GDA Auto-Laddering Strategy 7 What is Laddering How does it work Point of Sale Documents 8 Glossary 9 SAVINGS 1 AND RETIREMENT GUARANTEED INTEREST ACCOUNTS EQUITABLE LIFE OF CANADA

4 EQUITABLE LIFE GUARANTEED INTEREST ACCOUNT Financial Advisor s Guide - An Overview A Guaranteed Interest Account (GIA) is an ideal account for saving toward a special purchase, creating an emergency fund, a guaranteed holding for an investment portfolio, and guarding against market volatility. Discover the benefits that guaranteed investments can provide. Equitable Life s GIAs provide security of principal with a guaranteed rate of return. Savings Stability The Guaranteed Interest Account is included with the general funds of Equitable Life and is fully guaranteed. Deposits made to the Daily Interest Account (DIA) and Guaranteed Deposit Account (GDA) are RRSP and TFSA-eligible, providing a low-risk savings option and an effective way to safely grow and diversify your client s portfolio. Retirement Security A regular and reliable source of income is essential during retirement. Equitable Life s Guaranteed Interest Accounts are available for your client s Registered Retirement Income Fund (RRIF) and Life Income Fund (LIF). Interest earned on the GDA can be paid out monthly or annually, giving your clients the flexibility to choose the option that best suits their needs. BENEFITS OF EQUITABLE LIFE GIAs Rate Guarantees Upon request Equitable Life offers a 45 day rate guarantee for renewals on maturing deposits, ensuring you won t miss out on the best rates for your clients. Flexible Your clients can access the investment whenever they like. Withdrawals from GDAs and TDAs prior to maturity may be subject to Market Value Adjustments. Creditor Protection As an insurance contract, a Guaranteed Interest Account may provide creditor protection for the contractholder, subject to certain conditions. Estate Planning At death, the proceeds from the Guaranteed Interest Account may be passed directly to a named beneficiary and may avoid probate, legal and executor fees. No Policy Fees There are no policy fees or charges on the Equitable Life Guaranteed Interest Account. Safe and Secure Equitable Life is a member of Assuris, which administers the protection plan that provides protection to the policyholders of member companies. * * The Equitable Life Insurance Company of Canada is a founding member of Assuris, which administers the Consumer Protection Plan instituted to provide protection to the policyholders of member companies. Policyholders and prospective policyholders should read the Assuris brochure for details and limitations of coverage. EQUITABLE LIFE OF CANADA SAVINGS AND RETIREMENT GUARANTEED INTEREST ACCOUNTS 1

5 INVESTMENT OPTIONS Daily Interest Account (DIA) Daily Interest Account (DIA) The DIA is similar to a high-interest savings account and features an interest rate that rises and falls with current money market rates. The effective annual interest rate is compounded daily on the full balance. Interest is then credited to your client s DIA once per month. The DIA may be ideal for those clients seeking a secure and stable investment for emergency savings or for those who have not yet defined their financial goals. Deposits to the Daily Interest Account are included with the general funds of Equitable Life and are fully guaranteed. Guaranteed and Term Deposit Accounts (GDAs/TDAs) The GDAs and TDAs are included with the general funds of Equitable Life and are fully guaranteed. The wide range of terms allows your clients to select the term that is consistent with their investment time horizon. GDAs are available in two options - compound interest, and simple interest: Compound interest GDAs are available for terms of 1 to 15 years, and the interest is compounded on an annual basis. The minimum premium is $500 and each premium is considered a separate investment with a separate interest rate.* A simple interest GDA is available for terms of 1-10 years, with credited interest being paid either monthly or annually. The minimum premium is $10,000 and each premium is considered a separate investment with a separate interest rate. TDAs are simple interest accounts available with RRIF and LIF only, and are available for terms ranging from 11 to 30 years. Credited interest can be paid on a monthly or annual basis. The minimum premium is $5,000 and each premium is considered a separate investment with a separate interest rate. Investment options Registration options Terms Minimum Premium Compound interest Daily interest account (DIA) Non-registered, TFSA, RRSP, locked-in RRSP, RRIF, LIF N/A N/A Non-registered, TFSA, RRSP, locked-in RRSP 1-15 years $500 Guaranteed deposit account (GDA) RRIF, LIF 1-10 years $10,000 Simple interest Guaranteed deposit account (GDA) Non-registered, RRIF, LIF 1-10 years $10,000 Term deposit account (TDA) RRIF, LIF years $5,000 *Minimum deposit for RIF/LIF contracts is $10,000 for terms between 1 to 10 years. 2 SAVINGS AND RETIREMENT GUARANTEED INTEREST ACCOUNTS EQUITABLE LIFE OF CANADA

6 PRODUCT FEATURES Equitable Life offers a 45-day rate guarantee for all registered or non-registered funds being transferred from another carrier or for renewals on maturing GDAs and TDAs. When the GDA or TDA matures, the proceeds will be reinvented for the same term and interest option at the then prevailing interest rate unless alternative instructions have been provided. The term of the GDA or TDA may not exceed the maturity date of the contract. In the event that the renewal term exceeds the maturity date of the contract, the proceeds will automatically be reinvested for the length of time remaining to maturity. Equitable Life s GDAs and TDAs are flexible and allow your client to transfer or withdraw cash prior to the maturity date, along with an added advantage: only the portion of the GDA or TDA required at the time of redemption is surrendered, leaving the remaining balance to accumulate at the original guaranteed interest rate (assuming minimum balance requirements are met). MAXIMUM ISSUE AND DEPOSIT AGE Registration options Annuitant issue ages Maximum deposit age Maturity date Non-registered 0-85 * Age 90 * Age 105 TFSA * Age 90 * Age 105 RRSP Age 71 Age 71 Locked-in RRSP Age 71 Age 71 RRIF * Age 90 * No maturity date LIF ** ** Age 90 * No maturity date * Up to the day before the annuitant s next birthday ** Issue ages depend on the pension legislation the funds are administered under Guaranteed Interest Accounts and Term Deposit Accounts in excess of $1,000,000 require rate verification. Please contact the Advisor Services Team at EQUITABLE LIFE OF CANADA SAVINGS AND RETIREMENT GUARANTEED INTEREST ACCOUNTS 3

7 WITHDRAWALS / INCOME PAYMENT OPTIONS Your client s goals and circumstances will continually change. Equitable Life s Savings and Retirement plans have been designed with this in mind. Investments within your client s contract are always accessible.* *Registered locked-in contracts have certain restrictions and maximum withdrawal limits as prescribed by provincial pension legislation. Lump Sum or Unscheduled Withdrawals The minimum lump sum withdrawal for all contracts is $500 and may be subject to Market Value Adjustments. The contract will terminate if the entire cash value of the contract is withdrawn. Other than Market Value Adjustments, there are no additional fees or costs associated with the first two unscheduled withdrawals from any investment option in any calendar year. A $25 fee will be charged for each unscheduled withdrawal thereafter. Note: If your client s contract is registered and is not a TFSA, withholding taxes will apply to amounts withdrawn for any purpose other than the Homebuyer s Withdrawal Plan, the Lifelong Learning Plan or the required minimum payment for a RRIF or LIF. TFSA withdrawals are tax-free. RRIF and LIF Income Payment Options Equitable Life s RRIF and LIF accounts offer your clients flexibility and allow them to tailor the timing and amount of income to suit their needs. They have the option of electing an initial income date from the 1st to the 28th of the month. Payments can be received monthly or annually, and are deposited directly into your client s bank account. Payments can begin anytime but cannot start later than the end of the calendar year following the year that the RRIF or LIF was purchased. Minimum Payment Canada Revenue Agency (CRA) requires that all RRIF and LIF contracts pay out a prescribed minimum amount each calendar year. As a payment is not required in the year the contract is purchased, if your client selects Minimum Payment as their income option, no payment will be made in the initial year. Flat Dollar Payment* Your clients have the option to elect a fixed annual or monthly payment amount. Interest Only* Your clients have the option to elect Interest Only payments from their RRIF or LIF. The Interest Only payments only apply to investments in the Guaranteed or Term Deposit Accounts and will pay the interest earned on either a monthly or annual basis. Maximum Payment (LIF only) For clients that wish to maximize their available pension income, they can elect to receive Maximum Payments. Provincial pension legislation has placed a maximum withdrawal limit on LIF plans. The Maximum Payment is based on your client s age, account value, prevailing interest rates and investment return. Depending on the province of residence, your clients may be required to convert their LIF to a Life Annuity at age 80. *Total payments must meet the required annual minimum payment and cannot exceed the Maximum Payment for LIF contracts. Equitable Life will calculate both the Minimum and Maximum Payment amounts each year and will provide this information to your client. No Market Value Adjustments are payable up to the Minimum Payment required by CRA. 4 SAVINGS AND RETIREMENT GUARANTEED INTEREST ACCOUNTS EQUITABLE LIFE OF CANADA

8 Market Value Adjustments When transferring funds from a GDA or TDA prior to its maturity date, a Market Value Adjustment (MVA) may apply. The MVA determines a present value for the GDA/TDA being transferred by discounting the maturity value of the GDA/TDA using prevailing interest rates for the original term and band. The interest rate used to discount the present value is the higher of: i. the interest rate currently being earned on the GDA, plus 1% (¾% for TDA) ii. the interest rate in effect on the date of surrender for the same band and term plus 1% Why do companies charge a Market Value Adjustment? Typically, the longer the term of your client s GDA/TDA, the higher the interest rate. When a 5-year GDA is purchased, the guaranteed rate your client receives is based on the current outlook for interest rates over the next 5 years. As a result, these funds are invested with this time frame in mind and your client enjoys the higher interest rate for committing to this time frame. If the 5-year GDA is redeemed at year three, the MVA is applied to account for the difference in the interest rates between the 5 year GDA and the interest rates that would have applied had a 3-year GDA been originally selected. EQUITABLE LIFE OF CANADA SAVINGS AND RETIREMENT GUARANTEED INTEREST ACCOUNTS 5

9 TAXATION Your client s investments will generate taxable income over time. It is important to understand the impact of taxes on the performance of your client s investments and to make a distinction between the different types of income allocated to them. Non-Registered Plans Earnings from Guaranteed Interest Accounts are taxable and must be reported for income tax purposes. Tax-Free Savings Accounts Contributions made to a tax free savings account (TFSA) are not tax-deductible; however TFSA earnings are not subject to income tax and may be withdrawn at any time without income tax liability. Registered Plans Equitable Life Savings and Retirement plans can be registered under Section 146 of the Income Tax Act (Canada). Unlike a non-registered plan, income and growth attributed to investments within the registered plans are permitted to accumulate on a tax-deferred basis. Transfers between investment options within the registered plans are also tax-free. Contributions to an RRSP are fully tax-deductible and Equitable Life will provide your clients with a tax receipt. Contributions to a RRIF/LIF are not permitted; however, a transfer to a RRIF/LIF from an existing RRIF/LIF will be accepted provided account minimum requirements are met. Your clients have enjoyed the tax deductibility available through contributing to an RRSP over the years. As a result, any withdrawals from either their RRSP or RRIF/LIF are fully taxable at the annuitant s marginal tax rate. Any withdrawals from an RRSP or withdrawals from a RRIF/LIF that exceed the required annual minimum will be subject to withholding taxes per CRA regulations. Spousal Plans It is important to keep in mind taxation and income attribution rules as they apply to Spousal RRSPs. In order to avoid attribution, contributions made to a Spousal RRSP must remain within the plan for the remainder of the current calendar year and the two following calendar years. Withdrawals made prior to this time will be attributed back to the contributor spouse. Withholding tax will also apply on withdrawals from a Spousal RRSP as prescribed by the Income Tax Act (Canada). The same attribution rules also apply to Spousal RRIFs only for any amounts withdrawn that exceed the required minimum for that year. STATEMENTS AND CLIENT REPORTING Your clients will receive statements outlining the current financial status of their accounts at least annually. The statements will include a current Account Value and Cash Value, as well as a detailed summary of all transactions occurring within the plan over the last quarter. For RRIF and LIF contracts, statements will also outline the Account Value at the beginning of the year, total payments made in the current year and the minimum that must be paid out as income during the year. Clients will also receive a Confirmation Notice within 30 days (45 days for transferred funds) of completion of the application. This provides details regarding the effective date of the contract as well as a confirmation of the contribution made. 6 SAVINGS AND RETIREMENT GUARANTEED INTEREST ACCOUNTS EQUITABLE LIFE OF CANADA

10 GDA AUTO-LADDERING OPTION What is laddering? Laddering is a strategy that can be used to manage interest rate risk for your clients. How does it work? Your clients have the option to choose either a 5 or 10 year auto-laddering term. If the 5 year option is selected, their lump sum deposit is divided equally between 1, 2, 3, 4, and 5 year terms. At maturity, each deposit is automatically reinvested for a 5 year term. If the 10 year option is selected, their lump sum deposit is divided equally between 1 to 10 year terms. At maturity, each deposit is automatically reinvested for a 10 year term. Example: Auto-laddering option (5 years) 1 YR 2 YR 3 YR 4 YR 20% of investment is accessible each year For illustration purposes only. What are the advantages of the auto-laddering option? Manage the interest rate risk: By using the disciplined approach of auto-laddering, your clients don t have to worry about guessing the right time to invest they can start earning interest now. If interest rates do increase, they have access to up to 20% of their investment each year to reinvest at a higher interest rate. If interest rates go down, they will be glad to have the majority of their investment earning a higher interest rate. Potential for higher returns: By investing across multiple GDA terms, your clients have the potential to access higher interest rates than if they were to invest in short-term GDA terms only. Flexible cash flow: Your clients have access to a portion of their investment every year. The funds can either be reinvested or can be withdrawn without incurring a market value adjustment. If the Simple Interest option is selected, the interest is paid out on a monthly or annual basis, providing a guaranteed income stream. EQUITABLE LIFE OF CANADA SAVINGS AND RETIREMENT GUARANTEED INTEREST ACCOUNTS 7

11 POINT OF SALE DOCUMENTS The advisor is required to provide the client with the applicable Guaranteed Interest Account Contract, as well as a copy of the completed application. The Guaranteed Interest Account contract can be delivered in paper format, or the client may choose to obtain it electronically through The advisor must also have the following in his or her client file: fact finding used to develop a recommendation, a needs assessment and a written explanation of the reasons for the recommendation. 8 SAVINGS AND RETIREMENT GUARANTEED INTEREST ACCOUNTS EQUITABLE LIFE OF CANADA

12 GLOSSARY Account Value Annuitant Annuity Beneficiary Business Day Capital Gain/Loss Cash Value Contract Contractholder Effective Date LIF The Account Value of the DIA, GDA or TDA is the sum of the premiums or transfers in, less amounts withdrawn or transferred out, plus accrued interest. The Account Value of the Funds is the total value of the units held in the Funds. The Account Value of the Funds is based on the current Unit Value of the particular Fund in effect at that time multiplied by the number of units credited to the Contract in that Fund. The Account Value of the Policy Contract is the sum of the Account Values of the: Daily Interest Account, Guaranteed and Term Deposit Accounts and the Segregated Funds. This is the individual on whose life the maturity and death benefit guarantees are based. For registered contracts the Annuitant must be the Contractholder. An annuity pays a fixed amount to the annuitant for life or until the end of the annuity s term. This is the individual who is entitled to receive the death benefit proceeds should the Annuitant die prior to the Contract maturity. This is a day on which the Toronto Stock Exchange is open for trading in securities. A capital gain is the profit that results when a capital asset is sold for more than its cost. A capital loss arises when a capital asset is sold for less than its cost. The costs associated with the purchase or sale will reduce your client s capital gain or increase your client s loss. The inclusion rate on capital gains and losses is currently 50%. The Cash Value of the Policy Contract is equal to the Account Value of the Policy Contract minus the sum of any Market Value Adjustments applicable to the Guaranteed and Term Deposit Accounts and any surrender charges applicable to investments in the Segregated Funds. An agreement between two parties, written and enforceable by law. For example, Pivotal Select and Guaranteed Interest Accounts are represented by a Contract. This is the owner of the Contract. For registered contracts, the contractholder must be the Annuitant. The Policy Contract comes into effect on the date that the premium submitted with your client s signed accumulation annuity application is paid to us, or the date that the transferred fund relating to the previously submitted payout annuity application is received by us. Equitable Life will send you a subsequent Confirmation Notice to affirm our receipt of your client s first premium. A Life Income Fund is a type of Registered Retirement Income Fund that is exclusively used to invest monies from a Registered Pension Plan, a LIRA or Locked-in RSP. LIF annuitants must withdraw a minimum amount of income each year but cannot withdraw an amount in excess of the stipulated maximum calculated according to provincial pension regulations. Depending on your clients province of residence they may be required to convert their LIF to a Life Annuity in the year they turn 80. EQUITABLE LIFE OF CANADA SAVINGS AND RETIREMENT GUARANTEED INTEREST ACCOUNTS 9

13 LIRA/Locked-in RSP Marginal tax rate Premium RRIF RRSP TFSA Transfer A Locked-in Retirement Account is a type of Registered Retirement Savings Plan that is used to invest monies transferred from a Registered Pension Plan or another locked-in registered plan. This is the top rate of income tax that is charged to individuals on their last dollar of earnings. The rate also indicates how much tax you would save on each dollar of income that does not need to be reported on your tax return. For example, if your client s marginal tax rate is 46% and he/she contributed $1,000 to an RRSP, the amount saved in income tax would be $460. The payment an annuitant makes to an insurance contract. A Registered Retirement Income Fund provides income during retirement and is one of several maturity options for an RRSP. Investments within the RRIF continue to grow on a tax-sheltered basis. New contributions cannot be made to a RRIF (other than transfers from existing RRSPs), and a minimum annual payment must be withdrawn beginning the year following the year that the plan is opened as stipulated by CRA. RRIFs provide your clients with the option to make their own investment choices. A Registered Retirement Savings Plan is a savings vehicle that shelters earnings within the plan from income tax. Within prescribed limits, contributions to an RRSP are tax-deductible while income earned within the RRSP is permitted to grow tax free. Withdrawals from an RRSP are fully taxable as income and the plan must be wound up by December 31st in the year in which the contract-holder turns 71. A Tax-Free Savings Account is a registered savings vehicle that can be used for any purpose (ie. education, home purchase, vacation) or as a supplement or alternative to retirement funding. Contributions are not tax deductible, but growth is not taxable and withdrawals are tax-free. This refers to the movement of funds from one investment option to another, within the same contract. This information does not constitute legal, tax or other professional advice. or denotes a trademark of The Equitable Life Insurance Company of Canada. ADVISOR USE ONLY 10 SAVINGS AND RETIREMENT GUARANTEED INTEREST ACCOUNTS EQUITABLE LIFE OF CANADA

14 Works for me. Canadians have turned to Equitable Life since 1920 to protect what matters most. We work with you to offer solutions that provide good value, and help you navigate those solutions to meet the needs of your clients. But we re not your typical financial services company. We have the knowledge, experience and ability to find solutions that work for you and your clients. We re friendly, caring and interested in helping. And we re owned by our participating policyholders, not shareholders. So we can focus on your interests and provide you with personalized service, security and wellbeing. One Westmount Road North, Waterloo, Ontario N2J 4C7 Visit our website: denotes a trademark of The Equitable Life Insurance Company of Canada. 1308(2017/06/06)