Employer flexibility key to support new retirement patterns

Survey shows how workplace plan innovation can be used to help workers make the shift

Employer flexibility key to support new retirement patterns

With more Canadians planning to go outside the mould of traditional retirement, employers in Canada are realizing the need to change the way they support workers’ long-term finances.

In the Aon 2020 Capital Accumulation Plans Employer Survey Report, 24% of employer representatives from across 97 organizations said one key to the future success of capital accumulation plans is to “provide flexibility for emerging retirement patterns.”

Citing data from Statistics Canada, the report said that one quarter of the working population will be 55 or older by 2036.

Of those, a significant number are likely to forgo the traditional path to retirement. In its own survey of Canadian employees, Aon found that 36% expect to work part-time before they fully retire; 34% expect to go straight from full-time work to total retirement; and 30% expect to work full-time for the rest of their lives.

“Phased retirements can be a great way to promote knowledge transfer between experienced workers and new workers,” Aon said. “On the other hand, delayed retirements can be costly with increased plan expenses, compensation, and healthcare benefits.”

In its employer survey, Aon found around two thirds (65%) are exploring ways to help workers prepare better for retirement, with the objective of giving employees more control over their decision to retire. Rather than being forced to keep working by financial constraints, such employers believe workers should be able to gradually ease into retirement if it aligns with both their personal goals and their employers’ talent needs.

To aid emerging trends in retirement, participating employers cited different areas of focus including:

  • Creating workforce projections (27%);
  • Offering flexible work arrangements (24%);
  • Increasing financial commitment to retirement programs (16%); and
  • Facilitating early retirements (13%)

The survey also uncovered several steps employers are taking to help workers determine when retirement is financially feasible, as well as how to manage their money after retirement. For example, almost four out of five employers said they offer online modelling tools for employees to have an idea of when retirement is within their financial reach.

Half of employers surveyed said they give employees access to expert financial advice; almost the same number said they let participants leave some money in the plan or take partial distributions upon retirement.

More than 25% said they’ve either implemented variable lifetime payments (RRIF- or LIF-type options) or plan to do so next year. One third of employers facilitate the purchase of annuities outside their capital accumulation plans, though the report said very few CAPs allow those types of guaranteed lifetime options within the program.

The introduction of Advanced Life Deferred Annuities (ALDAs) and Variable Pay Life Annuities (VPLAs) in the 2019 Federal Budget aims to provide opportunities for workplace plans to enable customized decumulation with some longevity protection,” Aon said. “However, the legislation required to implement these may still be a couple of years away.”