Bridging the Retirement Readiness Gap with Pension Plans

As the cost of living continues to rise, there’s widespread concern among Canadians regarding retirement savings. Nearly half of Canadian employees haven’t set aside any money for retirement in the past year.  In fact, nearly a third say they’ve never set aside money for retirement. These worrying statistics were highlighted in a survey by the Healthcare of Ontario Pension Plan. Cost of living concerns, income not keeping up with inflation and higher interest rates were cited as major reasons behind this behaviour, as more Canadians find themselves living paycheque to paycheque, making it difficult for them to save. 

Employers have both an opportunity and a responsibility to consider how they can support their employees’ financial futures by offering pension plans, which can help provide employees with a significant source of retirement income.

How Pension Plans Work

A workplace pension plan is a savings program that helps employees build income for retirement. Both employees and employers contribute to these plans. These plans often offer tax advantages, which make them a secure investment choice for both employers and employees. There are two main types of plans: defined contribution and defined benefit plans.

In defined contribution pension plans, employees and employers contribute a set amount of funds each year. This money is then invested in financial products chosen by the employee. The retirement payout depends on the performance of these investments.

In defined benefit pension plans, employers guarantee employees income after they retire. Both employers and employees contribute to the plan and pool their contributions into a fund managed by the employer or a pension plan administrator. The retirement income is determined by factors like the employee’s salary and tenure in the plan. 

Closing the Gap

For many employees, having access to a pension plan can significantly impact their retirement security. The Healthcare of Ontario Pension Plan survey shows over half (55 per cent) of Canadians with employer-sponsored pension plans feel ready for retirement. In contrast, only 34 per cent of those without such plans feel prepared. 

Nearly 70 per cent of Canadians are willing to trade a slightly lower salary for a better pension plan. This willingness indicates employees are interested in prioritizing long-term financial security over immediate pay. For small and medium-sized businesses, this trend represents an opportunity to attract and retain skilled workers by providing competitive pension benefits, even if they may not be able to match the salaries of larger corporations.

The survey also brings attention to a concerning trend: a retirement readiness gap between genders. Women are less likely than men to feel ready for retirement. The gender pension gap in Canada was 17 per cent in 2021, meaning women receive $0.83 for every $1 a man receives in retirement income. Factors such as wage disparities and career breaks for caregiving contribute to lower lifetime earnings for women, which result in less accumulated retirement savings. This gap reflects a need for policies and plans that address the unique challenges women face in the workforce.

Understanding Your Options

Offering a workplace pension plan can be a valuable benefit for employees that improves retention and boosts financial security for your team. To effectively implement these plans, take the time to understand the types of plans available. Each has its own implications for costs, administration and employee contributions. Clear communication is also key, so employees understand the plan’s benefits, eligibility criteria and how contributions work. 

Knowing that a portion of retirement income is secure can reduce financial stress and enable employees to focus on other aspects of their lives and careers. Contact us today so we can help you assess what plan would work best with your goals and meets the needs of your team. 

Suggested Reading

Retirement Revolution? How to Adapt to Changing Trends

How Employer Matching Can Improve Retirement Readiness

Additional Sources

Government of Canada | Employer Pension Plans

Healthcare of Ontario Pension Plan | 2023 Canadian Retirement Survey