Offering a retirement program benefits employers as well as workers: study

Research carried out by the Healthcare of Ontario Pension Plan (HOOPP) and retirement benefits organization Common Wealth has found that offering a pension program for employees offers positive benefits for employers as well, reports Wealth Professional.

The study, titled The Business Case for Good Workplace Retirement Plans, notes that a good workplace pension plan should offer “value drivers” such as “regular automatic savings, lower fees and costs, investment discipline, fiduciary governance, and risk pooling,” the article, written by Leo Almazora, notes. As well, portability – the ability to keep the retirement program even if you change jobs – was seen as a positive feature, the article adds.

Common Wealth’s Alex Mazer states in the article that “having a plan that lets workers keep benefitting from the first five value drivers over the course of their career, even as they go from job to job and into retirement, can translate into hundreds of thousands of dollars in additional wealth accumulated over their lifetime, compared with saving for retirement on one’s own.”

Alex Mazer spoke to Save with SPP a few years ago about ways to encourage more retirement saving, and to make it automatic.

What’s interesting, the article notes, is that employers offering such programs also benefit.

“From an employer’s perspective, being able to offer a good workplace retirement plan is also a powerful tool. According to the research, having a vehicle to help them progress toward retirement is highly prized by employees, as it consistently emerged among the top benefits for recruitment or retention. Beyond that, it can also contribute greatly to improving productivity on the job,” the article reports.

“There’s a real linkage between people’s financial stress and their productivity,” Steven McCormick, senior vice president for Plan Operations at HOOPP, tells Wealth Professional. “In the research we’ve done, three quarters of employers said that any financial stress on an employee has an impact on productivity overall. I think that really makes the case for business owners to see workplace plans as an investment in their business as well as their people.”

Some business owners may see offering a pension plan as just another big expense, but McCormick says there’s a different way to look at it.

“For business owners who may have preconceived notions about the impact of putting a retirement plan in place, we’d suggest they should perhaps take another look,” McCormick states in the article. “They might not have a plan that hits all our five value drivers right off the bat, but we think it’s something to consider building toward to help their staff, their business, and society as a whole.”

This is a great look at an important issue. Let’s not overlook the fact that without a workplace pension plan, the responsibility for retirement saving becomes an individual burden. As well, those without sufficient savings for retirement may find themselves living on the spartan monthly income provided by the Canada Pension Plan, Old Age Security, and – if applicable – the Guaranteed Income Supplement.

Did you know that the Saskatchewan Pension Plan can be leveraged as a company pension plan? Contact us to find out how your company can offer SPP to its employees.

And, if you don’t have a pension program at work, perhaps the SPP can do the job for you. With SPP you get the benefit of low investment costs and pooling, and good governance. You can arrange to make regular, automatic contributions and SPP travels with you if you change jobs. Check out SPP today!

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It’s abundantly clear to most of us that Canadians aren’t able to save much money for the long-term, given the high costs of housing, historic levels of household debt, the lack of workplace retirement savings programs, and many other factors. A new research paper, The Canada Saver’s Credit, suggests a solution. 

Supported through the coalition behind the Common Good Retirement Initiative and published jointly by Common Wealth and Maytree, the paper’s authors Jonathan Weisstub, Alex Mazer and André Côté ask: Why not have the government match dollars contributed to a TFSA by qualifying moderate and low-income earners?  Save with SPP talked about the research with one of the study’s authors, André Côté.

The Canada Saver’s Credit (CSC) concept is fairly simple, he explains. Those whose income qualified them for the program would receive a dollar-for-dollar match by the federal government for every dollar they contributed to a TFSA, with the maximum match of $1,000.

“We wanted it to be as simple as possible for the consumer,” Côté explains. “Processing would be done by the Canada Revenue Agency (CRA). The definition is that if you are eligible for things like the GIS or the GST/HST credit, you similarly would be eligible for this; CRA would determine eligibility when you file your taxes.”

The government would provide the match (up to $1,000) based on the TFSA contributions the tax filer made in that tax year, and the money would appear in your account. Côté agrees that it would be similar to how the government matches, in part, contributions made to a Registered Education Savings Plan.

In drafting the report, Côté says recent research by Richard Shillington found that the average Canadian in the 55 to 64 age range had just $3,000 in retirement savings.

“It’s a stunningly low level of preparedness,” he says. As for causes, he says it is “particularly hard to save for modest to lower incomes, there are certainly… changes in pension coverage, people tend not to have retirement plans (at work), and the private retirement savings model isn’t well oriented toward moderate and lower income people.”

In designing CSC, Côté and his co-authors considered whether or not to make the program locked-in, meaning funds can only be accessed for retirement. But in the end, the “open” nature of the TFSA was preferred, he explains.

“The question is if you encourage longer-term savings … is locked-in any better? There is a paternalistic aspect to the policy that puts constraints around peoples’ money; a non-locked in TFSA offers liquidity and flexibility,” explains Côté. The CSC, he says, will offer a way to save for the long term that also can be accessed if there’s a hole in the roof or other financial crisis along the way.

These days, he notes, there is “asset poverty” among Canadians, meaning basically that many people owe more than they own, and thus lack long-term savings for emergencies. Research shows that many Canadians are “unbanked,” a term that refers to their total lack of savings. CSC can address both problems, he explains.

The authors based their proposal in part on the US Saver’s Credit, introduced in the early 2000s. The program offered a compelling model, but “never reached maximum effectiveness,” he says, because the core savings components the US policy-makers wanted were “removed or watered down.”

The paper was also heavily informed by the work of a number of leading Canadian experts in retirement savings and income security, including John Stapleton and Richard Shillington who first advocated for a TFSA matching model a decade ago.

While the authors of course take full responsibility for their work, Côté notes that the Canada Saver’s Credit proposal benefitted immensely from the amazing group of expert reviewers from Canada and the United States.

We thank Andre Côté for taking the time to talk with SPP.

Retirement saving can be difficult and daunting. The Saskatchewan Pension Plan is a useful tool for your own savings efforts, you can start small and ramp up your efforts over time. At the end, SPP offers an easy way to automatically turn your savings into a lifetime income stream.

Written by Martin Biefer
	Martin Biefer is Senior Pension Writer at Avery & Kerr Communications in Nepean, Ontario. A veteran reporter, editor and pension communicator, he’s now a freelancer. Interests include golf, line dancing and classic rock. He and his wife live with their Shelties, Duncan and Phoebe, and cat, Toobins. You can follow him on Twitter – his handle is @AveryKerr22

We sometimes think of retirement as an individual weight that we all must bear alone. But sometimes, using a collective approach can make that heavy load a little easier for us.

So says Alex Mazer, Founding Partner of Common Wealth. “Preparing for retirement is pretty hard to do individually,” he notes, adding that many people have trouble saving at all, he says, and few start while young. Then, they “can make poor investment decisions” when left to their own counsel, and thus don’t benefit from “the pooling of longevity and investment risk” that comes with a collective savings approach.

Without investment advice, which Mazer says can be difficult to get, many of us invest in high-fee, inefficient savings vehicles. Research shows that this individualized retirement reality results in low savings at retirement for all but the wealthiest among us, Mazer says.

Turning savings into retirement is also a complex process, he says. You have to keep investing while you are taking money out of your savings plan, he explains. If your money doesn’t continue to grow there is the danger “of overspending your savings, which can translate into reduced income later in retirement,” Mazer warns.

A collective approach is better than an individual one, Mazer says. With collective savings, investments can be pooled, reducing investment and longevity risk and reducing management fees. Finally, there can be simple, cost-effective ways to turn the savings into retirement income in a collective plan, he explains.

Working with different partners, Common Wealth is developing new collective retirement plans that are aligned with these principles, Mazer explains.

The company developed a plan for lower-income healthcare workers that combines a group TFSA with some of the key characteristics of a pension, including fiduciary governance, pooled investment management, and the potential for mandatory contributions through payroll. By using a TFSA structure, Mazer says, income at retirement is tax free, which means eligibility for the Guaranteed Income Supplement is not impacted.

The firm’s latest project is developing a nationally portable retirement plan for the non-profit sector, where about 850,000 workers who don’t have any sort of retirement vehicle at work. That number represents about half the non-profit workers in Canada. Again, the plans call for a pooled, collective system with professional investment management, low fees, and a plan for turning savings into income.

Mazer says that if he could personally influence one policy change, it would be to create “high quality collective plans with auto-enrolment” for workers lacking a pension plan at work. Auto-enrolment has worked well in the UK’s NEST program – very few people opt out. Mandatory plans are also popular in Australia. The result in both countries is a much higher level of retirement saving, he concludes.

We thank Alex Mazer for taking the time to talk to us. The Saskatchewan Pension Plan is an open defined contribution plan where contributions are invested collectively with professional management. Annuities are available to help you convert savings into an income stream. Perhaps SPP is the missing piece of your own retirement puzzle.

 

Written by Martin Biefer

Martin Biefer is Senior Pension Writer at Avery & Kerr Communications in Nepean, Ontario. After a 35-year career as a reporter, editor and pension communicator, Martin is enjoying life as a freelance writer. He’s a mediocre golfer, hopeful darts player and beginner line dancer who enjoys classic rock and sports, especially football. He and his wife Laura live with their Sheltie, Duncan, and their cat, Toobins. You can follow him on Twitter – his handle is @AveryKerr22