Flexible savings tools and alternative investments may improve retirement readiness by years
Innovations in defined contribution retirement plans could help many Canadians retire several years earlier, according to new analysis from Mercer Canada.
The firm’s 2026 Mercer Retirement Readiness Barometer found that combining flexible plan structures, greater exposure to alternative investments and new retirement income solutions could significantly improve retirement outcomes for workers participating in employer-sponsored savings plans.
Mercer said the findings come as Canadians continue to face economic uncertainty and elevated living costs that can make retirement savings more difficult. The report builds on earlier research examining the benefits of flexible defined contribution plan structures for younger workers and expands the analysis to include Variable Payment Life Annuities (VPLAs) and alternative investments such as private markets.
The study compared a traditional workplace defined contribution plan with a more flexible model designed to accommodate workers managing competing financial priorities early in their careers.
In Mercer’s example, a 30-year-old employee earning $75,000 annually with access to a workplace plan featuring a 5% employer match could improve their retirement readiness age from 69 to 66 through the use of innovative plan features.
Under the traditional structure, the employee delays contributions for 15 years and later contributes a combined 10% annually through employee and employer contributions. The model also assumes limited exposure to alternative investments and a standard drawdown strategy in retirement.
By contrast, the innovative scenario assumes the employee begins contributing immediately through a more flexible plan design that allows access to savings for short-term financial needs. The model also incorporates higher allocations to alternative investments within target-date funds and access to a VPLA product designed to create a more stable retirement income stream.
“These combined DC innovations can help some Canadians retire over 3 years sooner,” Mercer said in the report.
The firm added that the impact could be even greater for higher-income earners, with some scenarios showing retirement readiness improving by five years or more.
“This year's Barometer illustrates that innovation in DC is aligning to better support retirement and savings outcomes,” said Bernadette Chik, Mercer Canada’s defined contribution leader. “By offering flexible savings options, access to annuity-like solutions like Variable Payment Life Annuities (VPLAs) and broader diversification through alternative assets, employers can create a truly powerful DC retirement ecosystem.”
Mercer said employers evaluating workplace retirement programs should focus on three main areas: flexible plan design, retirement income and decumulation strategies, and investment diversification through broader access to alternatives.
