Onus increasingly on employees to plan for retirement but employers still play role

While pension plan sponsors and the government have roles to play when it comes to retirement, it’s increasingly up to individual employees to ensure they have a solid retirement plan, said Jack Mintz, the president’s fellow at the University of Calgary’s school of public policy.

During a virtual roundtable hosted by the Association of Canadian Pension Management on Thursday, he noted the shift away from defined benefit pensions to defined contribution plans means the onus is increasingly on the employee to make sure they don’t run out of money once they reach retirement. And with Canadians living and likely working longer, it’s time for government policy to reflect this change.

Read: Retirement age rising for millennials, gen X and boomers: report

“We’ve had a number of tax rules and pension rules based on the age of 65 and that made a lot of sense years ago, but the issue is now, once you hit 65, you can live to 87 or even longer.

“I think we need to allow people to put more money in tax-sheltered savings. I would like to see an increase in pension limits and [tax-free savings account] limits in order to help people save more for the future. I’d also like to see more rules around [registered retirement income funds], when you have to withdraw money out of your retirement accounts, etc. to provide more flexibility.”

While government policies can help ease the burden on Canadians, pension plan sponsors also play a key role, said Mintz, noting employers should actively educate employees about the importance of saving, investing and planning for retirement, whether they offer a DB or a DC pension.

Read: Using creativity to engage employees with pensions

And while many employers have opted for DC plans in recent years, he argued some companies may want to reconsider that decision. “I’ve been a bit of a lonely voice in that I’ve always argued there’s a very important role that defined benefits have that allows the transfer of investment risk from employees to employer and that’s important because an employer can accept that risk more than any individual can.

“Many companies may want to use DB plans as a way to keep employees on for a long time. As we move more and more to labour shortages with the ageing population in Canada, keeping your employees will become important. So I always say don’t count out defined benefit plans quite yet — there’s a real value to them.”

Indeed, after closing its DB pension to new entrants in 2013, the Canada Mortgage and Housing Corp. opened the plan up to all employees in 2018. But since many employers don’t want to take on the extra risks of a DB plan, Mintz noted an option that “isn’t full DB and passes on some of the risk to the individual” could be a way forward.

Read: How the CMHC closed its DC pension and returned to a DB plan

The current health and financial crisis has only highlighted the need for employers to engage employees in planning and saving for their own retirement instead of either burying their heads in the sand or assuming they can rely on a DB pension plan in their golden years, he said.

“The best way forward is getting people to understand their own responsibilities to themselves and their families so that they have money for their future.”