Articles of Interest
Canada’s Dynamic Workforce: Strategies for Improving Retirement Outcomes
Workforce trends and tendencies have undergone significant transformations since the mid-20th century, with a more mobile workforce emerging. With increased mobility and the number of jobs Canadians will have over their career come challenges in tracking retirement benefits and assets, leading to potential losses and stranded benefits. This article examines the impact of such challenges and the flexible options available to help individuals manage their retirement savings with a focus on achieving healthy retirement outcomes in an evolving workforce landscape.
Workforce mobility trends
After the Second World War and through the 1950s and 1960s, most workers spent their entire careers with one company or organization. Mass firings were nearly unheard of (unless a business went under), and layoffs were uncommon. During this period, many large companies in Canada and the United States started to offer their workers pension plans, with a DB design being the most common1.
Because there was little employee turnover, it was easy for these workers to keep track of their pensions. Upon retirement, they would know how much they would receive per month, and usually, they had one point of contact with their former employer to deal with any issues or changes (like moving or the death of a spouse).
However, economic upheaval changed the employment landscape throughout the late 1970s, 1980s, and 1990s. Layoffs became more common as businesses made employees and positions redundant. At the same time, technological advancements led to the creation of new industries and roles. All the while, changing attitudes towards employment, job satisfaction and work-life balance emerged. As a result, a more mobile workforce has become the norm.
Workers have, on average, seven different employers throughout their careers, according to a study by Statistics Canada2. Canadian workers often do not have a choice on what type of retirement plan (if any) their employer offers and with which provider, so it could be easy for someone to lose track of which financial institution might hold some of their money, especially if they worked for several employers who offered different plans and did not move their retirement assets at the time of moving to a different employer. When it is time to retire, it could be difficult for someone to keep track of all the different accounts or to know exactly what they are owed and by whom.
Not accounting for all of one’s retirement benefits and assets could have disastrous implications at retirement. A recent report from Ontario's pension regulator, the Financial Services Regulatory Authority (FSRA), says around 200,000 pension plan members in that province have lost track of their pensions, with over $3 billion in stranded benefits3.
A Global Challenge
Canadians are not unique compared to other countries regarding the number of employers they might have throughout their careers. As such, the challenge of ensuring all retirement assets are accounted for is a global one. Let’s examine some of the solutions that other countries around the world have adopted to tackle this issue.
In the early 2000s, Australia amended its legislation to enable portability, which allows Australians to move their retirement assets to a fund of their choice. The purpose of these changes was to empower Australians to consolidate their retirement assets. Better retirement incomes were at the core of this change allowing Australians to minimize fees through economies of scale and avoid stranded benefits (at the time stranded Australian benefits assets were estimated to be $7 billion)4.
Whereas Australia has empowered individuals to consolidate retirement assets, Iceland has taken the approach of aligning pension funds to industries in an effort to achieve similar objectives. The entire country has 21 pension funds, reduced from about 100 over the years. Most funds are aligned with certain professions, unions or industries (for example, there are funds for construction workers, dentists, and farmers), though some are open to anyone5. Certain professions have compulsory membership in specific funds, while others allow members to join the pension fund of their choice. Once again, having all (or most) of one’s assets within a pension fund achieves scale and reduced fees and helps Icelanders keep track of all of their retirement assets. A national Pension Portal also allows members to track funds in all of their accounts.
Such pension portals are another solution countries around the world have adopted to help members keep track of all retirement assets. Australia, Belgium, Denmark, Israel, the Netherlands, and Sweden have all set up dashboards to track retirement assets and benefits6.
Canadian options
The Saskatchewan Pension Plan (SPP) is a voluntary plan open to all Canadians7. It prides itself on flexibility, allowing members to contribute whenever they want, with no minimum or maximum contributions (subject to Canada Revenue Agency limits). It is a locked-in pension plan, meaning members cannot withdraw any savings until they are 55. However, the SPP allows transfers from existing unlocked registered retirement investments, which can help new members build up their savings quickly. SPP also provides options in retirement for its members once they are over age 55.
Multi-Employer Pension Plans (MEPPs) are pension plans to which more than one employer contributes. MEPPs are common in certain industries such as construction, the nursing and retirement home industry, and the retail sector, all of which often have smaller employers and a highly mobile workforce. Moreover, certain MEPPs are open to various industries.
Such examples, like the global ones cited above, can leverage economies of scale to reduce fees and achieve efficiencies. Moreover, the risk of stranded benefits is minimized when retirement assets and benefits are combined over one’s career. Ultimately, these can positively shape members’ retirement outcomes.
An Inclusive Framework
A framework that allows Canadians to maintain retirement benefits and assets in a combined manner promotes an inclusive retirement system and helps support diverse populations. Low-income and marginalized individuals are often likely to have smaller pension amounts and pension benefits and/or retirement assets below a certain threshold may be paid out in cash losing the benefit of tax-sheltering.
In the US, a Portability Services Network has been established, which aims to adopt auto portability – the automatic transfer of small balance retirement accounts as workers shift employers. Auto portability helps under-served and under-saved workers, especially minorities, women & low-income workers, improve their retirement outcomes8.
Innovative retirement structures for a dynamic workforce
Over the years, we have seen a shift in workforce patterns and tenure. Emerging trends continue to develop with a growing freelance and gig economy. With these trends arise challenges with respect to Canadians' retirement readiness. However, where there are challenges, there also lie opportunities. As retirement structures continue to evolve to support Canada’s dynamic workforce, we have an opportunity to provide innovative solutions with a focus on retirement outcomes. Enabling a variety of frameworks which help Canadians manage all of their retirement benefits and assets will help tackle one of the many challenges Canadians face as they prepare for retirement.
1 https://workforce.com/news/the-history-of-retirement-benefits
2 https://www150.statcan.gc.ca/n1/daily-quotidien/211209/dq211209e-eng.htm
4 Portability of Superannuation Benefits - Making of Regulations | Treasury Ministers
5 Iceland Tiny But Great Collective DC Plan
7 Personal Pension Plans for Individuals | Saving for Retirement (saskpension.com)
Lilach Frenkel, Director, Product Innovation, CAAT Pension Plan
Lilach is a seasoned actuary with over 20 years of experience in the pension industry working with various stakeholders to manage and meet risk objectives through strategy and innovation.
As part of the Strategic Risk Management team at the CAAT Pension Plan, she develops products and initiatives that open new strategic opportunities and risk mitigation techniques for the Plan.
Prior to joining CAAT, Lilach was a Partner at Aon, providing strategic advice to plan sponsors, boards and pension committees on initiatives related to plan design, policy reform, funding and accounting for pension plans.
She often speaks and writes about plan sponsor risk management and decumulation strategies and member engagement as a means to drive best outcomes.
Lilach has volunteered on numerous committees of the Canadian Institute of Actuaries and the Financial Services Regulatory Authority of Ontario.
Lilach is a Fellow of the Canadian Institute of Actuaries (FCIA) and a Fellow of the Society of Actuaries (FSA). She holds a degree in Actuarial Sciences from the University of Toronto.