A proposed retirement plan tax credit for small- and medium-sized employers could reduce cost barriers to offering employer-sponsored retirement programs, according to a new report by the C.D Howe Institute.
It noted more than nine million working Canadians lack access to a workplace retirement plan, with the gap most pronounced among employees of SMEs. As a result, the report said many workers are left to make inconsistent, often costly, savings decisions that increase the risk of inadequate retirement preparedness.
The proposed tax credit would support plan set-up costs and employer contributions, expanding access to workplace retirement savings in a way that’s fiscally feasible relative to existing federal retirement expenditures.
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“The real risk is not today’s retirees, but tomorrow’s,” said Keith Ambachtsheer, executive-in-residence and director emeritus of the University of Toronto’s International Centre for Pension Management, who co-authored the report. “Without workplace plans, younger and middle-class Canadians, already burdened by affordability challenges, are left to navigate retirement saving on their own. They deserve a tool that will help them build long-term wealth.”
According to the authors’ estimates, the proposed tax credit would lower the cost of offering a retirement plan by nearly half for a typical small employer over the first three years. Depending on uptake, the program could expand coverage to between 125,000 and 500,000 additional workers over five years at an estimated cost of $1 billion to $2 billion over that period.
The report found fewer than one in five SMEs with five to 499 employees offer a retirement plan, compared to the U.S., where nearly half of small employers offer a plan. It added the proposed program could help close this gap while enabling smaller businesses to offer more competitive compensation, attract and retain talent and improve employee financial well-being.
“Small employers want to help their employees save, but cost and perceived complexity are real barriers,” said Alex Mazer, co-founder and chief executive officer of Common Wealth and the report’s co-author. “A targeted tax credit is a practical next step that would make it much easier for small businesses to offer retirement plans, while helping hundreds of thousands of Canadians build long-term financial security.”
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