I would take a step back and say that with prospectus mutual funds, you are allowed to do that, and the tax code has provided for that for a long time. I would turn it around and ask why we would distinguish from one vehicle to the other. If it's good enough for one, it's good enough for the other.
That question raises a whole host of other issues that PMAC has views on as well, which we'll raise in due course.
The pooled fund itself, first of all, comes more cheaply to the insurance companies, so they are able to charge less to the end investor, which obviously is desirable for retirement savings. It increases the amount you have at the end of the day.
When you have a merger, typically you have to have a unitholder vote to approve it, especially when there are real differences among the funds. Therefore, if you had a target date fund, which has a very specific investment objective, and it would merge into, say, a Canadian equity fund, if it were a mutual fund, you'd be guaranteed to have an investor vote, because the investment objectives are radically different.
In seg funds you don't have the same rules, but you do have what they call “free exit” in that situation, so if investors don't like the merger proposal, they can always redeem out of the fund.
One of the reasons we often propose fund mergers, as opposed to just terminating the fund, is if we terminate the fund or if you redeem your money, it's the same tax consequence. The one shot you have to defer the tax is if you have a fund merger.
Offering a fund merger as a possibility gives the investor control of their destiny. They have the widest array of choices. If they decide they want to trigger their tax now, they'll vote against it or just withdraw their money. They can also just defer it and see how this new investment does.