Some Canada Life segregated fund policies with the lifetime income benefit closing to new deposits

Transcription

1 Some Canada Life segregated fund policies with the lifetime income benefit closing to new deposits Answering your questions The change Q1: What s changing? A: Effective May 7, 2013 at 4:00 p.m. London, Ontario time, Canada Life can no longer accept additional lump-sum premiums to era 1 policies with the lifetime income benefit option. Era 1 policies are those with the lifetime income benefit added prior to Oct. 19, This change, announced April 30, 2013 will also include a change to pre-authorized contribution (PAC) arrangements. No new pre-authorized contributions will be allowed, and existing PACs on these policies will be ineligible for increases following the announcement. Clients regular PAC arrangements on era 1 policies will stop Sept. 3, Q2: What policies are affected by this change? A: Affected policies are those where the lifetime income benefit was added prior to Oct. 19, The lifetime income benefit on these policies has a five per cent deferral bonus and higher payout percentages than policies available today. See the table below for a comparison. Age range Not affected era 2 policies (lifetime income benefit added on or after Oct. 19, 2012) Single-life income bonus Joint-life income bonus AFFECTED era 1 policies (lifetime income benefit added prior to Oct. 19, 2012) Single-life income bonus % 2.50% 4.00% 3.50% % 2.90% 4.25% 3.75% % 3.30% 4.50% 4.00% % 3.70% 5.00% 4.50% % 4.10% 5.25% 4.75% % 4.50% 6.00% 5.50% Bonus 3% 3% 5% 5% Joint-life income bonus Page 1 of 6

2 Q3: Why is the change happening? A: The recent interest rate environment and volatile market conditions have proven challenging for guaranteed minimum withdrawal benefits. In response, many competitors have reduced the amount of their income guarantees or effectively eliminated their guaranteed minimum withdrawal benefit (GMWB) options. As companies have exited the guaranteed minimum withdrawal benefit market, or pulled back their offerings, a much higher concentration of sales into the Canada Life segregated funds policies lifetime income benefit has occurred. This level of sales is unsustainable. Q4: If a client recently opened a policy with the lifetime income benefit, will this sale be subject to the change? A: No. If the lifetime income benefit was added on or after Oct. 19, 2012, it s not affected. Q5: Are any features of an affected policy guarantees, deferral bonus, payout rates, and policy anniversary affected? A: This change doesn t affect the guarantees, core features or benefits for era 1 policies. Guarantee levels will remain intact. The only impact to a client s policy will be the inability to make subsequent premium deposits, including PACs. Clients will still be eligible for a deferral bonus of five per cent (subject to product rules). Payout rates will remain unchanged, ranging between four and six per cent, by age. The policy effective date, and therefore anniversary, will also remain the same. Q6: If clients still wish to continue with PAC arrangements, can their existing PAC information be used to set up the same arrangements into the lifetime income benefit on a new policy? A: Unfortunately, no. New investment arrangements must be made, including opening a new segregated fund policy, adding the lifetime income benefit, and establishing new PAC arrangements. All minimum requirements for opening a new policy will need to be met. Q7: Is limiting the sale of the lifetime income benefit part of the contract? A: Yes. The segregated fund policy contract provides the flexibility to limit additional sales at any time. The contract states: You can only apply for the lifetime income benefit option if we are offering it at that time. We reserve the right, in our sole discretion, to discontinue offering the lifetime income benefit option at any time without notice. A discontinuance of the lifetime income benefit option will not affect the lifetime income benefit option that is in force at the time We discontinue offering the lifetime income benefit option. If you terminate the lifetime income benefit option after We cease offering the lifetime income benefit option, you will not be able to request it at a later date. Likewise, the information folder contains the following: We can refuse any request for the lifetime income benefit option and restrict premiums or limit subsequent premiums being applied to the policy while the lifetime income benefit option is in force in accordance with our then-current administrative rules. Page 2 of 6

3 Q8: Is Canada Life the only insurance company to make a change like this? A: No, there have been a number of changes to GMWB and lifetime income guarantee products over the last two to three years. Most insurance companies have capped deposits on GMWB policies. Q9: Why wasn t this change made in October 2012 when new payout percentages for the lifetime income benefit were announced? A: There was no need to limit policies at that time. GMWB products have changed and inflows into Canada Life s older policies have increased. This level of sales into older policies was unsustainable. Q10: Are amendments required for clients current contracts if they have an existing lifetime income benefit? A: No amendment to your clients contracts is required. Q11: Are any other changes being made to the lifetime income benefit at this time? Is the price affected? A: No other changes are being made at this time, including price. Q12: Will additional premiums into a lifetime income benefit added after Oct. 19, 2012 be restricted? Could premiums be limited in the future? A: Additional premiums are still allowed to be made into a lifetime income benefit added after Oct. 19, No restrictions are being placed on these policies and PACs will continue unaffected. While there are no limits at present, Canada Life can t commit to never limiting premiums on these or any other policies. Q13: Will clients receive direct communication? A: A letter will be mailed to clients on May 8, 2013, whose PAC arrangements are affected. An advance copy of this letter and a list of affected clients will be sent in packages to managing general agencies for prompt distribution to advisors with affected clients, April 30, All clients with affected policies will see a message in their June Canada Life segregated funds policy statements. Q14: How will advisors know which clients are affected? A: A list of all affected clients, both with and without PACs, will be mailed to advisors on April 30, Q15: Is it necessary for advisors to communicate with clients? A: Like any change, it s suggested advisors communicate with clients in regular meetings over the coming months. Clients with PACs who want to make new investment arrangements need to do so before Sept.3, 2013 and therefore likely need to be contacted over the summer to ensure they don t unexpectedly experience stoppages in their regular savings plans. Advisors should use their discretion when contacting clients. Timelines for adding to pre-oct. 19, 2012 segregated fund policy lifetime income benefit options Page 3 of 6

4 Q16: What if a client signs the paperwork for a lump-sum deposit, but the purchase isn t submitted until after May 7, 2013? A: No exceptions will be made to the cutoff date. (Exceptions apply to paperwork for nominee and intermediary business. See question below.) Q17. Paperwork for nominee and intermediary policies can take longer to process. Will they be subject to the timelines above? A: All wire order trades and paperwork must be complete and signed by May 7, 2013, 4 p.m. London, Ontario time. Reasonable time for paperwork to arrive will be given on these types of policies, as long as the signature and wire order dates have been met. Q18: What if funds arrive, but the client missed the cutoff on May 7, 2013? A: We ll communicate directly with advisors to determine whether the client would want to set up a new policy or have the funds returned. If the client wishes to set up a new policy, the lifetime income benefit can be added to that policy. The deferral bonuses in affect on that date will apply. Q19: Can deposits still be made through FundSERV? A: No. Deposits made through FundSERV after 4 p.m. on Tuesday, May 7, 2013 will be automatically rejected. Please contact the Client Service Centre with questions around FundSERV processing. Q20: Will there be changes to the application and information folders? A: No. All applications, information folders and contracts remain the same. Business in progress Q21: If a client is currently transferring registered or non-registered funds from another institution, and plans to deposit the funds into the lifetime income benefit on a pre-oct. 19, 2012 policy, how will they be affected? A: Efforts will be made to accommodate these clients. If applicable, the Canada Life administration team will follow up with both the advisor and the transferring institution to monitor the transfer and help ensure the transfer arrives. Please keep in mind: If the transferred funds arrive within 45 days of receiving the original application, funds will be applied to the policy requested. If the funds don t arrive within 45 days, the funds will need to be directed to another policy. To assist the smooth processing of these transfers: Ensure all paperwork, including transfer forms (for example, TARI) is signed and received in good order by the Canada Life administration office by May 7, 2013, 4 p.m., London, Ontario time. Identify the source of funds for the transfer Q22: What if transferred funds arrive more than 45 days after the May 7, 2013 cutoff date? Page 4 of 6

5 A: The financial security advisor/advisor will be contacted to determine whether the client would want to set up a new policy or have the funds returned. Clients who wish to set up a new policy can add the lifetime income benefit to that policy. The deferral bonus and payout percentages are the post-oct. 19, 2012 rates. Q23: What are the appropriate contact numbers for the processing instructions above? A: Contact the Client Service Centre: (Repline) Monday to Friday, between 7:00 a.m. to 8:00 p.m. ET (English) and 8:00 a.m. and 7:00 p.m. ET (French). Canada Life clients can also be directed to the Client Service Centre at Mailing address: London administration office: 255 Dufferin Ave, T-424 London ON N6A 4K1 Montreal administration office: 2001 University Ave., Suite 540 Montreal, Quebec H3A 1T9 Changes to existing contracts with the lifetime income benefit option Q24: Can clients transfer from a pre-oct. 19, 2012 policy with the lifetime income benefit to a new policy and keep the existing lifetime income benefit and its features? A: The only transfers eligible to maintain the payouts and deferral bonus will be intact transfers and limited to the following: Registered savings to registered income transfers where full policy value is being transferred Ownership transfers considered a deemed disposition for tax purposes Registered savings policies with joint-life income where the primary annuitant has died Q25: Can clients remove the lifetime income benefit on a pre-oct. 19, 2012 policy and then add it back on later? A: No. A client can re-add the lifetime income benefit, (after the waiting period), but it will be subject to the payout percentages and bonus available at that time. They cannot re-add their original lifetime income benefit. Q26: Could you allow more money to be added to policies in the future? A: It isn t our intention to open these policies for additional premiums in the future. Q27: What will happen if the primary annuitant dies on a policy with a lifetime income benefit? A: Nothing will change from current process. Illustrators and tools Page 5 of 6

6 Q28: Will this change affect the income illustrations from your tools? Will you leave your tools in place? A: The lifetime income benefit illustrator and income allocator aren t affected by this change. Q29: Will you be updating marketing and other material as a result of the change? No. The change doesn t affect marketing material. The income market Q30: Could further changes come in the future? A: We ve made the changes we feel are needed at this time. Q31: A number of institutions have stopped selling GMWB products. Will Canada Life continue to offer these kinds of products in the future? A: The guaranteed income market is a relatively new one, and there will no doubt be more changes to these products. The income products and guarantees offered to Canadians will likely change over time. Canada Life is absolutely committed to the income market, and understands the importance of offering guaranteed income to Canadians during retirement. The income products provided may change, and Canada Life continues to build the suite of products available to this market. Q32: Where can I go for more information? A: For more information contact the Canada Life regional marketing centre nearest you: British Columbia Prairie Ontario Eastern Page 6 of 6