OECD countries lack adequate frameworks for flexible retirement

While there’s a growing desire for more flexible retirement options to address changing societal needs, most Organisation for Economic Co-operation and Development countries lack adequate frameworks for it.

The finding is among the conclusions of the OECD’s 2017 report on pension systems around the world. While there’s a growing desire by older workers to work part-time and gradually withdraw their pension entitlements, the design of public pension systems often restricts people’s options for working longer, the report noted. It suggested that in order to efficiently promote more gradual forms of retirement, restrictions on withdrawing partial pensions shouldn’t depend on the amount of work and labour income earned after the normal retirement age.

Read: How do Canadian executives see the future of pensions and benefits?

“We’re doing a lot of talking about it but we’ve seen very little action,” says Ofelia Isabel, a global account director at Willis Towers Watson, referring to options for flexible retirement in Canada.

The report also found part-time work is common among those aged 65 and up across OECD countries. It noted that the simplest approach for combining work and pensions is for an employee to claim a full pension at the normal retirement age and continue to work full- or part-time. But some countries limit how much pensioners can earn, although Canada has no earnings limit, according to the OECD report. Canadian workers can retire with their mandatory earnings-related pension from age 60 with a reduction, but neither the basic nor means-tested pensions are available before age 65.

Bonnie-Jeanne MacDonald, a senior research fellow at the National Institute on Ageing at Ryerson University’s Ted Rogers School of Management, sees flexible retirement as a good answer to individual financial and emotional needs, as well as addressing larger societal issues.

“The idea of having a flexible retirement is so valuable, because that helps people to have a lever to actually decide at what point am I actually going to be ready for retirement,” she says.

She suggests some legislative changes — such as increasing the maximum age for drawing down registered retirement savings plan holdings and allowing people to delay Canada Pension Plan payments past age 70 — may better accommodate people who are looking for a flexible retirement.

Read: How can Canada’s retirement system better address pension portability?

Isabel says that with Canadians entering the workforce later after spending more time at school and lifespans increasing, the time spent accumulating pension savings is getting shorter even as people live longer in retirement. She points to a recent survey that found 40 per cent of respondents didn’t expect to retire until after age 70, up from 16 per cent two years earlier.

“We’re a lot healthier after age 65 than we were 20 to 30 years ago, so in a lot of cases, that makes sense,” she says. “At age 65, we’re still incredibly productive, we still want to work. But there’s a whole bunch of other people who are working just because they feel like they have to.”

Employers also have varying needs. Some must hang onto many of their current workers amid labour shortages. Other organizations are happy to encourage the older generation to retire and replace workers with people trained in new concepts and ways of doing business.

Isabel says that means having flexible approaches that allow for personalization according to individual needs. But she also finds the pension industry hasn’t done enough to engage employees in retirement and notes there’s room for improvement in communicating what’s available to them.

Simon Nelson, a principal at Eckler Ltd., also sees opportunities for employers to help their employees better understand what’s available to them. “While [flexible retirement options] exist and the ability to use them exist, at least in my experience, they’re not widely used,” he says.

Read: Canada to still lag behind OECD average replacement rate for typical workers: report

The OECD findings follow a new report from PricewaterhouseCoopers LLP that also delved into the issue of the fate of older workers. The report found Canada has a lower employment rate among older workers than OECD countries including Korea, Germany, Japan, and Sweden.

“Canada’s remains in the middle of the pack of OECD countries when it comes to realizing the value of older workers, leaving room for much needed improvement,” says Karen Forward, partner for people and organization at PwC Canada.

“Addressing how older workers can actively participate in the labour workforce and implementing supportive work environments and policies are key to Canada’s future economic prosperity. Improvements are possible when there is a cultural shift — there is an opportunity for organizations to lead the way by innovating their development programs, and creating a sustainable work environment that contributes to the quality of life of its workers.”

The report found:

  • In Canada, 47 per cent of workers aged 50 to 75 would continue to work if they could do so part-time.
  • 35 per cent of workers aged 50 to 75 would continue to work if they could work from home.
  • Flexible working in terms of both hours and location would help older workers carve out a role that suits their changing working preferences and lifestyle.

As for actions business can take, the report’s recommendations include allowing for unpaid short- and long-term leave to let employees can take leave periods throughout their career and then return to work, rather than retiring at specific age.