Longevity’s 2022 Fund Review and Actuarial Report Summary
Simon Barcelon
.28 Nov 2022
.We’ve just released the inaugural Longevity Pension Fund Annual Report, as it’s important that we ensure investors and prospective investors understand what is happening with the Fund so that they can make an informed financial decision. While there is no requirement to publish an Annual Report, we understand the importance of providing transparency not only on how the Fund is structured but also on how it is working and the progress it’s making towards achieving its goals – just like the Income Policy and the Actuarial Reports that we shared.
There’s considerable information and insight to gain from the report, but it consists of more than 30 pages of in-depth analysis that could take a few hours to digest. We know not everyone has that type of time to spend digging into it, so we’ll break down the highlights in this blog so that you can take away the key messages in 5 minutes.
Key Takeaways
The Fund performed well relative to the broader markets, showcasing its emphasis on risk management, achieving specific outcomes versus chasing benchmarks, and adding downside protection.
After carefully reviewing the Funding Levels, we are pleased to announce that we are holding distribution levels steady for all cohorts in 2023 despite dealing with a very challenging market environment. All the Decumulation cohorts remain over-funded or in a fully funded position.
LifeWorks reviewed the Fund and the Income Policy, and they confirmed that we followed the process and methods set out in the Income Policy for setting distribution levels for 2023. They also provided the analysis of their modelled scenarios and showed that the evolution of distribution levels is expected to rise over time.
Fund Performance vs. The Market
As the world has emerged from the pandemic over the past year, many key themes have come into focus for the markets to react to. From supply chain issues that continue to persist, the war in Ukraine, or rising interest rates in response to soaring inflation, all the broad-based indices over the past year have suffered declines. Some comparative year-to-date numbers:
Performance as at September 30, 2022; Source: Bloomberg
Against that backdrop, the Longevity Pension Fund performed well compared with the broader markets, showcasing its emphasis on risk management, achieving specific outcomes versus chasing benchmarks, and adding downside protection. The Alternatives portion of the portfolio was vital in providing downside protection for the portfolio, with the commodity complex being a central component of this asset class. The tactical overweight in cash funds, which yielded north of 3.3% at the time, also provided value protection. Lastly, market hedges contributed positively to the Fund and lowered the overall volatility experience for investors.
Fund Performance
Performance reflects the Series F Accumulation Class as of September 30, 2022. The indicated rate of return is the historical annual compounded total return including changes in share/unit value and reinvestment of all distributions and does not take into account sales, redemption, distribution or optional charges or income taxes payable by any securityholder that would have reduced returns.
Funding Levels and Distribution Levels Next Year
The Fund’s Income Policy provides transparency on how we manage the distribution levels to ensure we can pay income for life and includes the approach to determine future rates for all investors. We take the following steps to manage the distribution levels for the Fund:
Similar to how a defined benefit pension plan is managed, we take a funding-level approach to compare the Fund’s assets with the present value of expected future liabilities.
The long-term funding-level target is 100%; however, this may be higher in the earlier years of a cohort to provide additional stability in distribution levels.
The distribution levels are adjusted annually to bring the funding level to its target, which ensures the cohorts are adequately funded to provide lifetime income in retirement.
After carefully reviewing the Funding Levels, we are pleased to announce that we are holding distribution levels steady for all cohorts in 2023 despite dealing with a very challenging market environment. All the Decumulation cohorts remain over-funded or in a fully funded position. This reflects the strength of our overall product design and our objective of providing a stable income level. The following table* outlines the ending funding levels of each Decumulation cohort as of September 30, 2022, and the prescribed adjustments to the Distribution Levels for 2023:
The calculation for determining 2023’s Distribution Level is done for each cohort separately since each pays a unique distribution level and has its own mortality experience.
Actuarial Review and Future Expected Rates
It was important for us to have a third-party actuarial and retirement consulting firm review our Annual Report and validate that we have followed all the guidelines described within the Income Policy, so LifeWorks was brought in to undertake this independent review. We are happy to share that LifeWorks reviewed the Fund and the Income Policy, and they confirmed that we followed the process and methods set out in the Income Policy for setting distribution levels for 2023, which leads to holding distribution levels steady in 2023.
The following statistics for a 65-year-old investor are from LifeWorks’ section of the Annual Report describing the Evolution of Distribution Levels when applying 2,000 stochastically generated future economic scenarios. It shows that the evolution of distribution levels is expected to rise over time, on average, under their modelled scenarios:
This table models hypothetical performance data. It was created using LifeWorks ESG data as of September 30, 2022, which includes 2,000 stochastically generated future economic scenarios. The results shown are purely hypothetical and do not provide a guarantee of expected performance of the Fund. This table does not consider all risks, fees, unique financial circumstances, or the costs of redeeming an investment in the Fund.
This table models hypothetical performance data. It was created using LifeWorks ESG data as of September 30, 2022, which includes 2,000 stochastically generated future economic scenarios. The results shown are purely hypothetical and do not provide a guarantee of expected performance of the Fund. This table does not consider all risks, fees, unique financial circumstances, or the costs of redeeming an investment in the Fund.
The Bottom Line
At Longevity, we work tirelessly to create a world where more people see retirement planning as an opportunity, not a challenge. Our mission is to give Canadians the stability and confidence to make the most of their retirement years, so keeping everything transparent regarding the Fund’s structure and its progress in achieving its goals is something in which we take pride. Longevity is meant to comprise a portion of your retirement portfolio to provide additional lifetime income above the retirement income sources the government provides (such as the Canada Pension Plan/Quebec Pension Plan and Old Age Security)to meet your non-discretionary income needs.
Speak with your financial advisor to see how Longevity can fit into your portfolio, or contact us if you have any questions about the Fund.
*This table sets out the current distribution level as at the date of the report. Distribution levels are not guaranteed and the amount of distributions may increase or decrease.
Commissions, trailing commissions, management fees and expenses all may be associated with investment fund investments. The prospectus contains important detailed information about the investment fund. Please read the prospectus before investing. There is no assurance that any fund will achieve its investment objective, and its net asset value, yield, and investment return will fluctuate from time to time with market conditions. If the securities are purchased or sold on a stock exchange, you may pay more or receive less than the current net asset value. Investment funds are not guaranteed, their values change frequently and past performance may not be repeated. Income in the form of Fund distributions is not guaranteed, and the frequency and amount of distributions may increase or decrease The Fund has a unique mutual fund structure. Most mutual funds redeem at their associated Net Asset Value (NAV). In contrast, redemptions in the decumulation class of the Fund (whether voluntary or at death) will occur at the lesser of NAV or original purchase price less distributions paid.
The Longevity Pension Fund is managed by Purpose Investments Inc. The document is not investment advice, nor is it tailored to the needs or circumstances of any investor. Talk to your financial advisor about retirement planning to determine if the Longevity Pension Fund is right for you and always read the prospectus before investing. Nothing in this document shall be considered a solicitation to buy or an offer to sell, or a recommendation for, a security, or any other product or service, to any person in any jurisdiction where such solicitation, offer, recommendation, purchase or sale would be unlawful under the laws of that jurisdiction. No securities commission or similar regulatory authority has reviewed this document and any representation to the contrary is an offence. Information contained in this document is believed to be accurate and reliable, however, we cannot guarantee that it is complete or current at all times. The information provided is subject to change without notice.