What is a Variable Payment Life Annuity?
Quick Answer
A Variable Payment Life Annuity (VPLA) provides income for life, but the monthly payment can increase or decrease over time. Payments may change based on investment results and how long people in the plan live.
Unlike a traditional life annuity purchased from an insurance company, a VPLA is usually offered through an eligible pension or group retirement plan, not bought directly by individuals. In Quebec, this type of retirement income option is referred to as a Variable Payment Life Pension (VPLP).
On this page
- What is a Variable Payment Life Annuity?
- Where are VPLAs available in Canada?
- What is a VPLP in Quebec?
- How VPLA / VPLP Payments Can Change
- Investment and Longevity Risk
- Can You Buy a VPLA From an Insurance Broker?
- Where Can VPLAs Be Offered?
- VPLA vs Traditional Life Annuity
- VPLA Income May Start Higher, But It Can Change
- Key Benefits of a VPLA
- Important Limitations to Know
- Who Can Get a VPLA?
- Compare Traditional Life Annuity Rates
- Request a VPLA Comparison Quote
What is a Variable Payment Life Annuity?
A Variable Payment Life Annuity (VPLA) is a retirement income option that can provide income for the rest of your life. The main difference is that the monthly payment is not fixed. It can increase or decrease over time based on investment results and the experience of the plan.
A VPLA is different from a traditional life annuity purchased from an insurance company. A traditional life annuity usually provides guaranteed lifetime income with fixed payments, while a VPLA provides lifetime income with payments that may change.
Where are VPLAs available in Canada?
VPLAs are usually available only through eligible pension plans or group retirement plans in Canada. They are not normally purchased directly by individuals from an insurance company.
Availability depends on whether your pension or group retirement plan offers a VPLA option. In Quebec, this type of retirement income option is called a Variable Payment Life Pension (VPLP).
What is a VPLP in Quebec?
In Quebec, a Variable Payment Life Annuity (VPLA) is referred to as a Variable Payment Life Pension (VPLP). The idea is similar: it is a retirement income option that can pay income for life but the payment amount can increase or decrease over time.
A VPLP is usually connected to an eligible pension plan or voluntary retirement savings plan, not something most people buy directly from an insurance company like a traditional life annuity.
How VPLA / VPLP Payments Can Change
VPLA and VPLP payments are not fixed like a traditional life annuity. The income can increase or decrease over time based on investment returns and the experience of the plan.
If the investments perform better than expected, payments may increase. If returns are weaker than expected, payments may decrease. Payments may also be adjusted based on how long people in the plan live.
In simple terms, a VPLA or VPLP can provide income for life but the amount you receive may change from year to year.
Investment and Longevity Risk
With a traditional life annuity, the insurance company takes on the investment risk and the risk that you live longer than expected. That is why the payment is usually fixed and guaranteed for life.
With a VPLA or VPLP, the risk is shared differently. The plan pools longevity risk among members, but investment results can still affect the amount of income you receive.
This means a VPLA or VPLP may provide income for life, but the payment amount can change if investment returns or plan experience are different than expected.
Can You Buy a VPLA From an Insurance Broker?
No, a VPLA is not normally purchased from an insurance broker the same way you buy a traditional life annuity. A VPLA is usually available only if it is offered through an eligible pension plan or group retirement plan.
If your plan does not offer a VPLA, you may still be able to buy a traditional life annuity from a Canadian life insurance company. A traditional life annuity can provide guaranteed income for life, usually with fixed payments.
This is why many retirees compare VPLA-style income with traditional life annuity quotes before deciding which retirement income option fits their situation.
Where Can VPLAs Be Offered?
VPLAs can usually be offered through eligible pension plans or group retirement plans. They are not a general retail annuity product that most individuals can buy directly from an insurance company.
In Quebec, Variable Payment Life Pension funds can be offered by certain plans, including defined-contribution pension plans and voluntary retirement savings plans. However, plans are not required to offer this option.
This means access depends on the specific rules of your pension or group retirement plan. If your plan does not offer a VPLA or VPLP, a traditional life annuity may be the more practical option to compare.
VPLA vs. Traditional Life Annuity
| Feature | VPLA | Traditional Life Annuity |
|---|---|---|
| How to get it | Eligible pension or group retirement plan | Purchased through a life insurance company |
| Income for life | Lifetime income but payments may change | Guaranteed lifetime income payments usually fixed |
| Payment amount | Payments can rise or fall over time | Payments are fixed unless indexing to inflation is chosen |
| Investment risk | Shared by members in the pool | Managed by the insurance company |
| Can individuals buy it? | Usually no | Yes |
| Best suited for | Members whose pension plan offers a VPLA option | Individuals who want guaranteed lifetime income |
VPLA Income May Start Higher, But It Can Change
Some VPLA options may start with a higher monthly income than a traditional life annuity, depending on the plan's assumptions and how the income is calculated.
However, higher starting income does not mean the payment is guaranteed to stay higher. VPLA payments can increase or decrease over time based on investment returns and survivorship experience.
A traditional life annuity may start lower in some cases, but the payment is usually fixed and guaranteed for life by the insurance company.
Key Benefits of a VPLA
A Variable Payment Life Annuity (VPLA) can offer several benefits for retirees who have access to this option through an eligible pension or group retirement plan.
- Income for life: A VPLA is designed to provide retirement income for as long as you live.
- Potential for payment increases: Payments may increase when investment returns are stronger than expected.
- Longevity risk is pooled: The risk of living longer than expected is shared among members of the plan.
- Less personal investment management: The plan administrator manages the fund instead of each retiree managing the investments alone.
- Less withdrawal decision-making: Payments are calculated by the plan, so retirees do not have to decide how much to withdraw each year.
Important Limitations to Know
A VPLA or VPLP can be useful, but it is not the same as a traditional life annuity with fixed guaranteed payments. Before choosing this option, retirees should understand the main limitations.
- Payments can decrease: Income may go down if investment returns are weaker than expected.
- Not available to everyone: A VPLA is usually only available if an eligible pension or group retirement plan offers it.
- Not usually purchased directly: Most individuals cannot buy a VPLA directly from an insurance company or broker.
- Less payment certainty: Unlike a traditional life annuity, the payment amount is not usually fixed for life.
- Plan rules matter: Access, payment options, death benefits and adjustments depend on the rules of the plan offering the VPLA or VPLP.
- Transfers may be difficult to reverse: Once retirement savings are transferred into this type of fund, the decision may not be easy or possible to undo.
Who Can Get a VPLA?
A VPLA is generally for people who have access to an eligible pension plan or group retirement plan that offers this option. It is not usually available to every retiree as a regular individual annuity product.
In Quebec, a person must generally have eligible retirement savings and meet the age or plan requirements for a Variable Payment Life Pension (VPLP). The plan administrator must also provide an estimate before the transfer is made.
For most Canadians, the first step is to check whether their pension or group retirement plan offers a VPLA or VPLP option. If it does not, a traditional life annuity may be the easier lifetime income option to compare.
Compare Traditional Life Annuity Rates
Traditional life annuities can be purchased individually through Canadian life insurance companies. Unlike a VPLA or VPLP, the income is usually fixed and guaranteed for life.
Review current life annuity rates to see how much guaranteed lifetime income may be available based on your age, deposit amount, gender, province and annuity type.
View Current Life Annuity Rates
Request a VPLA Comparison Quote
A VPLA or VPLP may only be available through an eligible pension or group retirement plan. If you want to compare it with a traditional life annuity that provides guaranteed lifetime payments, complete our VPLA comparison quote form.
Disclaimer: This page is for educational purposes only and is not personal financial, tax, or legal advice. VPLA availability depends on the rules of the pension or group retirement plan offering the option.