E Point Perfect

Tontines in Canada: Moving from theory to practice as a solution to our retirement crisis

“Canada leads the U.S. and leads the world in the sense of broad retail availability. Our innovation was to embed the structure in a mutual fund,” says Stark. Think of Purpose’s product as a lower-case tontine, and Guardian Capital’s as a tontine with a capital T. Guardian Capital confirms that securities regulators in all Canadian provinces have given it the required “exemptive relief” under N181-102 (which lets it redeem at values other than NAV) and have all signed the prospectus issuing the securities. 

In fact, Purpose is welcoming the competition from Guardian Capital. One unicorn product is hard to get our heads around, but two suggests a trend that the public can latch on to. Canada is well ahead of the United States in offering these types of commercial tontine products, says Stark, and Purpose is exploring with U.S. regulators taking the concept south of the border. 

Where to buy tontines in Canada

For retail investors, the main and perhaps only way to buy these types of tontine-like products—including Purpose Longevity Fund or the three new solutions from Guardian Capital—is through dealers licensed to sell mutual funds (MFDA and IIROC) across Canada.   

Guardian Capital’s Modern Tontine

Guardian Capital hints at innovation with its new tontine. “With our modern tontine, investors concerned about outliving their nest egg pool their assets and are entitled to their share of the pool as it winds up 20 years from now… Over that 20-year period, we seek to grow the invested capital as much as possible to maximize the longevity payout,” according to Guardian Capital’s Gordon in a press release.    

How it works: 

Investors who redeem early or pass away leave a portion of their assets in the pool to the benefit of surviving unitholders, boosting the rate of return. “All surviving unitholders in 20 years will participate in any growth in the tontine’s assets, generated from compound growth and the pooling of survivorship credits,” according to Gordon in a news release. “This payout can be used to fund their later years of life as they see fit, and aims to ensure that investors don’t outlive their investment portfolio.”

GuardPath Managed Decumulation 2042 Fund, the first of its three offerings, is not a tontine but essentially a balanced mutual fund. It delivers cash steadily over 20 years through risk management techniques aimed at extending portfolio longevity. As the first of the three accompanying charts illustrates, an initial $100,000 investment steadily declines over the 20 years, while over the same time, cash flow is received each year, totalling $160,000.

The second fund, GuardPath Modern Tontine 2042 Trust, is an actual tontine. It’s designed to provide financial security to retirees in later life, with significant payouts to surviving unitholders in 20 years based on compound growth and the pooling of survivorship credits for the eligible cohort of investors born between 1957 and 1961. 

The second chart shows total tontine payouts of $548,143 (again on an initial $100,000 investment) for those who live the full 20 years, assuming an annual net return on the portfolio of 6.92%. The light-grey smaller bars show the value in the case of death or early redemption, which is projected to remain above the initial $100,000 in this example scenario. 

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