The world is changing – the labour force is different, people switch jobs more frequently and companies have shorter life spans.
As a result, there are fewer employer-sponsored retirement plans, an issue that has contributed to fewer Canadians preparing themselves adequately for later life.
But it’s not as if workers aren’t aware of this growing problem. According to a report by The Aspen Institute’s Financial Security Program in Washington, D.C. in collaboration with Toronto-based Common Wealth, three-quarters of Americans are worried they won’t have enough for retirement, while 6 out of 10 don’t even have a pension account or savings.
Alex Mazer, co-founder of Common Wealth, told WP that these figures are echoed in Canada and that the report proposed an approach to address the issue and meet the needs of today’s rapidly changing workforce. It focused on Portable Non-Employer Retirement Benefits, a retirement model that is workplace-based but not tied to a single job or employer.
Mazer said there has been a fast decline in people who are covered by defined pension plans as employers become less inclined to bear the risk. The gig economy is burgeoning, he added, and financial stress is the number one cause of anxiety in Canada. Clearly, change is required.
The Portable Non-Employer Retirement Benefits is similar in some aspects to a typical employer plan, but with crucial differences. The sponsor, for example, would not be a single employer but can be a variety of different groups like a labour union, a professional or trade association, or a group representing a particular sector.
The “portable” aspect of the proposal is another key differentiator, meaning it is owned by the workforce so you can continue to be a member of the plan regardless of whether you stay with one particular employer. It would be open to non-employees, so freelancers and gig workers are eligible.
Mazer said the concept is not entirely new in that there are some examples in Canada where plans are transferred from one municipality or one hospital to another.
He said: “It’s not exactly what we have in mind here but it has some similar characteristics. It’s also different from a retail product in the sense that it is still a group arrangement and having the sponsor there is important for a couple reasons – it allows the sponsor to protect the best interests of the people in the arrangement and it’s regulated much differently.”
From an advisor's point of view, the plan model is a win-win in that it would take care of a lot of the basic requirements of retirement planning while freeing up time for them to provide added value and a more specialist, personal service dealing with business tax or divorces, for example.
He said: “If I think about the role of the advisor, increasingly they are looking for ways to add value to their clients as investment management and portfolio construction gets more and more commoditized.
“This type of arrangement, if one existed, means you can take care of a lot of basic retirement stuff by encouraging the client to enrol in a plan that would allow you to concentrate on more high-value add.”
A gap in many employer’s pension plan guidance and advice is around the income stage, which is often more complex than the accumulation stage, dealing with things like longevity and portfolio de-risking.
Mazer said that those behind the report were cognisant of the value of good advice and financial planning but also aware that a lot of the population don’t have access to that.
He said: “We think about this plan as giving that kind of access to a much broader group – and that could be a plan with good features and design, and with built-in advice. But you can also think about advice being provided as part of a plan as almost an additional feature. An association might do group sessions or individual sessions on key life events around retirement so people can have that human guidance.”
Common Wealth believes the human touch element of advice is central and anticipates advisors having a role to play in these plans. Working alongside the sponsors, Mazer believes it can be a pension framework that suits the modern-day worker.
He said: “One of the neat things about this is when you look at the groups involved, like unions and associations, who are very excited about providing value to their members and are always looking for new opportunities; whereas an employer may be looking but it tends not to be a number one priority for their business.”