How Does It Work? A Longevity Pension Fund Theoretical Case Study

Fraser Stark


29 May 2021


Wondering how you'll have income for life with the Longevity Pension Fund? Not sure exactly how it all works? No problem.

Let’s meet Nicole.

Nicole is 66 years old and after 40 years in the hospitality industry as a pastry chef she has finally decided to hang up the oven mitts.

She invests $100,000 into the Longevity Pension Fund to begin her retirement journey. She’s now in the Decumulation Class and is put into a cohort with other investors around her age.

Nicole begins to receive monthly income payments totalling $6,150 annually. This marks the beginning of her lifetime income stream.

She knows that if she ever needs to redeem, she has access to her unpaid capital—the $100,000 that she invested, less the total income payments she has received to date. She rests easy knowing that this same amount is available to her estate if she passes away.

Years pass and the number of investors in the cohort decreases, as some people pass away and others choose to redeem. The returns generated from those exited investors remain in the fund, and as a result, when Nicole turns 73, her monthly income from the fund begins to increase.

Nicole celebrates her 75th birthday on the beach in Bali, margarita in hand. Her biggest worry isn’t if she’ll have enough money to last, but instead whether that monkey is eyeing her Satay.

All this time, Nicole recalls that income payments are set based on the fund’s performance, as well as the mortality experience and redemptions of her cohort. This means that while her payments are expected to increase over time, they may go up or down. Nicole plans and spends accordingly and knows this trip to Bali is the first of many.

This story is for illustrative purposes only. Distributions and returns for investment funds may fluctuate and are never guaranteed. This should not be considered investment advice or financial advice, and is not tailored to the needs or circumstances of any investor. Always reach out to professional advisors to consider your unique circumstances prior to investing.

The Longevity Pension Fund is designed to provide income for life, with an initial targeted annual income payment of 6.15% for a 65-year-old individual. The payments are designed to increase over the long term; however, they may go up or down to reflect the performance of the underlying investments and other factors such as mortality experience of the cohort. A traditional lifetime income solution could include a lifetime income annuity with a 10-year guarantee period, which has on average a fixed starting payment of 5.76% for 65-year-old males (Source: Cannex, May 19, 2021).

Forward-looking statements are not guaranteed.

Certain statements on this site may be forward-looking. Forward-looking statements (“FLS”) are statements that are predictive in nature, depend on or refer to future events or conditions, or that include words such as “may,” “will,” “should,” “could,” “expect,” “anticipate,” intend,” “plan,” “believe,” “estimate” or other similar expressions. Statements that look forward in time or include anything other than historical information are subject to risks and uncertainties, and actual results, actions or events could differ materially from those set forth in the FLS. FLS are not guarantees of future performance and are by their nature based on numerous assumptions. Although the FLS contained in this document are based upon what Purpose believes to be reasonable assumptions, Purpose cannot assure that actual results will be consistent with these FLS. The reader is cautioned to consider the FLS carefully and not to place undue reliance on the FLS. Unless required by applicable law, it is not undertaken, and specifically disclaimed, that there is any intention or obligation to update or revise FLS, whether as a result of new information, future events or otherwise.

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