OSFI Releases Draft Guidance For Pensions Considering Longevity Risk Hedging

The Office of the Superintendent of Financial Institutions Canada (OSFI) recently released a draft policy advisory intended to provide guidance to administrators of federally regulated pension plans that are considering entering into an insurance or swap contract for the purpose of hedging longevity risk.

The draft policy advisory, beyond discussing the types of longevity risk hedging contracts and the risks to be considered when contemplating entering into such contracts, also sets out OSFI's expectations for plan administrators that decide to employ such hedging strategies.

Specifically, the advisory states that OSFI would expect that prior to entering into a longevity risk hedging contract, plan administrators would: (i) understand the impact of longevity risk on their pension plans; (ii) determine whether entering into such a hedging contract is in the best interests of beneficiaries; (iii) determine whether the hedging contract offers value for cost;