UBC's Faculty Pension Plan, for dummies

Yesterday I went to an information session about UBC's Faculty Pension Plan, designed for faculty approaching the age when we have to decide what to do with the money the Plan has accumulated on our behalf.  Even if we choose not to retire (or not yet), by age 71 contributions to the Plan will end and we must make a decision.

Until retirement or age 71, the Plan has been taking money from our salaries and from UBC's pockets, and investing it in something they call their Balanced Fund.  (Yes, if you know what you're doing you can change the investment mix.)  The info session told us that this fund does pretty well, and because it's a big pot of money ($2 billion) the management fees are very low.

At retirement or age 71, you have three choices.

1. If you want to manage your money yourself, you can take it out of the Plan.  But if you don't use it for an annuity or retirement fund you'll have to pay taxes on the full amount. 
2. You can leave it in the UBC Plan's Balanced Fund and treat it as a retirement fund, using regular withdrawals to support your retirement or other goals.  You pay tax on these withdrawals.  Depending on the details (RRIF vs LIF), there are upper and lower limits on the withdrawal amounts.  Your goal may be to have spent all your money by the time you die, or to leave what's left to your family or other beneficiaries.
3. You can purchase a UBC Plan annuity ('Variable Payment Life Annuity') that will pay you a relatively constant amount every month until you die.  The amount depends on how much money you pay when you purchase it, how old you are at this time, and a bit on how well the Balanced Fund is doing (that's the 'Variable Payment' part).  IMPORTANTLY, it doesn't depend on whether you are male or female.

In a normal annuity (not purchased from the UBC Plan), a woman gets less money per month than a man who invests the same initial amount.  Here's a quote from an outraged article in the Globe and Mail.

Here’s the reality behind the numbers, based on the table published Monday, May 2: A 65-year-old woman who gives $100,000 to a major insurance company will get an annuity of about $474 a month, while a man of the same age spending the same amount will get $519. A woman who waits until the age of 71 to buy her annuity will get $548 monthly, while a man of the same age will get $603.

But the differing returns are because the woman is likely to live longer.  On average, women get about the same amounts from their annuities over their lifespan as men do.

The UBC Annuity Plan doesn't do this.  It ignores the differences in male and female survivorship, so men and women who purchase the same annuity amount at the same age get the same monthly income.  This is really good for women because we can expect to continue getting our payments for 5 or 6 years longer than a man would.  If payments are $3300/month (UBC's predictions for a $500,000 purchase in 2017), this is about $200,000!

The UBC Plan's use of a single gender-neutral survivorship datable creates another benefit.  The table doesn't just average the survivorships for men and women.  Instead it weights these by the proportions of men and women in the pool of people buying UBC annuities.  Since this pool is currently 80% men, the survivorships will be lower than they would otherwise be, so the calculated monthly payouts will be higher.