Relief from redemption price requirement for 'income for life' mutual fund
The Canadian Securities Administrators (CSA) has granted exemptive relief to the Longevity Pension Fund (the Fund) from subsection 10.3(1) of National Instrument 81-102 Investment Funds (NI 81-102) to permit the Fund to calculate the redemption price of a security of a decumulation class of the Fund at a price that may be less than the net asset value (NAV) per security of that class.
The Fund is a novel mutual fund with “income for life” characteristics that was pre-filed with the CSA. The Fund is designed for investors who are at, or approaching, retirement and aims to offer longevity risk protection for investors that anticipate a lengthy lifespan and are concerned about having sufficient income in the later years of their life. It aims to pay increasing distributions as investors age and as other retirement assets diminish. The lifetime payments on the units of a decumulation class are funded through investment returns generated by the Fund’s portfolio, redemptions due to both mortality and voluntary redemptions, and returns of capital. Investors who survive longer than the average person in their age cohort earn a “longevity benefit”, which is reflected in ongoing annual increases to the lifetime income payments.
The decision grants exemptive relief from subsection 10.3(1) of NI 81-102 to permit the Fund to use a redemption mechanism that provides a redemption price to unitholders of a decumulation class upon their death or voluntary redemption of the lesser of:
- the original purchase price per unit less the aggregate of all cash distributions paid in respect of such units, and
- the NAV per unit.
This redemption mechanism is an essential feature of the Fund and fundamental to how returns are, in part, generated for each decumulation class.
The decision requires the Fund to disclose in a text box on the cover page of its simplified prospectus and fund facts document for each decumulation class the calculation method of the redemption price and a reminder that the redemption price may be less than the class’s NAV per unit.
The decision also permits the fund facts document of each decumulation class to include certain charts intended to assist investors in understanding the unique investment objective of the Fund and assessing the appropriateness of the Fund for their needs.
Chantal Mainville, Senior Legal Counsel, Investment Funds and Structured Products Branch