Variable payment life annuity
The Variable Payment Life Annuity (VPLA): A way to turn retirement savings into lifelong income
In January 2026, Quebec led the way by becoming the first Canadian province to allow defined contribution plans and voluntary retirement savings plans (VRSPs) to offer participants payout options in the form of dynamic annuities.
This change follows regulations adopted after a consultation held in 2025. It now allows defined contribution plans and, VRSPs to offer a variable payment life annuity (VPLA) option.
The VPLA is an intermediate solution that turns retirement savings into lifelong income while varying payments based on fund performance and the group’s demographic experience. It sits between a traditional annuity guaranteed by an insurer, with fixed payments, and self-managed decumulation, where retirees manage their own portfolio.
What is a VPLA?
At retirement, part or all of the accumulated balance in a plan can be transferred into a VPLA fund. This transfer buys a number of annuity units in the fund and establishes an initial income amount, calculated using certain parameters such as age and the fund’s actuarial assumptions.
After that, payments are adjusted periodically, for example once a year, based on two main factors:
- Fund performance: if investments perform well, payments may increase; if they perform less well, payments may decrease;
- Mortality experience: if participants live longer or shorter than expected, this can also affect payment amounts. Similarly, observed changes in life expectancy can lead to adjustments.
To stabilize payments and share longevity risk, the regulations allow mortality experience to be pooled across funds. This pooling of experience is intended to reduce both individual volatility and the impact of unfavorable demographic experience on a small group.
Key parameters
- 1 Reference rate:
- 2 Actuarial valuations:
- 3 Adjustment period and mechanism:
- 4 Governance and disclosure:
Benefits of a VPLA
A VPLA offers several advantages:
- it provides lifelong income, offering a degree of security;
- it helps share longevity risk among participants;
- it reflects the actual performance of the fund, with potential for higher payments;
- it may be less expensive than a fully insured annuity.
Limitations and risks
However, it also has some limitations and risks:
- payments can vary, which may concern some retirees;
- it requires actuarial and administrative expertise to implement;
- its structure may appear more complex than a traditional annuity.
In short
The VPLA is a new decumulation option that combines the security of lifelong income with a degree of flexibility. Its goal is to offer retirees an intermediate solution between a guaranteed annuity and hands-on management of their savings.
Its effectiveness will depend on the precise design of the adjustment rules, the governance of the funds, and plan sponsors’ ability to offer products that are simple, transparent and low-cost so participants will be willing to use them.
