The traditional aim for the defined contribution pension industry has been helping plan members save for retirement, but as the nature of employment, plan design, investment choice and member engagement evolves, that objective is changing to financial wellness.
“The world has changed significantly since the defined contribution business emerged,” said Marc-Antoine Morin, assistant vice-president of product development in group retirement solutions at Manulife, during Benefits Canada‘s 2023 DC Plan Summit. “Let’s talk about some of the things that are different. Is retirement the same as it was before?”
According to Statistics Canada, people are retiring four years later than they were in the early 2000s, he said, noting the road to retirement is also less linear. For example, it often includes both part-time and full-time work, time out to return to school, a gap year or parental leave and, even when it comes time to actually retire, it may involve a phased retirement or second career.
“It’s safe to say that what we used to define as retirement — which might have been actually the cornerstone of a lot of the pension industry in Canada — is just not the same as it was before.”
In addition, people’s financial priorities are evolving, with retirement no longer at the top of their lists, and these competing priorities are leading to higher levels of financial stress, noted Morin. “Retirement might not be the top priority and financial stress, as much as I’d like to be hopeful and say it’s going to decrease over time, it doesn’t feel like it’s going to be the case.”
Perhaps it’s time to change the core objective of a savings program, he said, suggesting plan sponsors shift away from the message of saving for retirement and invest in the financial well-being of employees. However, he did caution against a complete shift, noting retirement should become integrated into the larger objectives of the organization.
Digital tools and the rise of advice are two ways to alleviate this shift, said Morin. “You can’t hope to turn all of your employees into experts in different financial priorities, but if you offer advice as a service then you can actually have a channel.
“If you’re engaging with your employees, you can’t talk about retirement every week [or] every month, but if you’re talking about financial wellness and financial priorities, it’s going to open the door,” he added. “. . . So this type of approach, if you recap it with all of the challenges and the change that we’ve talked about, is it realistic, could it actually work?”
To move from a retirement to financial wellness approach, he said the industry must re-evaluate what it considers foundational and implement different types of solutions, including those related to decumulation. “You can educate your employees, support them as they approach retirement, provide them with education resources [to] empower them. You can . . . work with a service provider or an advice provider that can not only educate, but can actually help members take action and own the decumulation platform or you can implement it yourself.”
Morin concluded by asking DC plan sponsors what they’d like to do next with their plans. “You can actually invest and say, ‘The next big thing in my organization is going to continue to improve the retirement income of my employees,’ which is a very valid answer. Or you can actually work in another dimension and say, ‘Actually, the next big thing . . . is to go more vertical — I’m going to invest in more financial wellness outcomes.’”
Read more coverage of the 2023 DC Plan Summit.