With Canadian employees feeling the toll the coronavirus pandemic is taking on the economy, should policy-makers facilitate the use of workplace emergency savings plans?
“We know from data that 28 per cent of Canadian households who are financially impacted by COVID in August were drawing down on their [tax-free savings accounts] and [registered retirement savings plans] just to make ends meet,” said Elizabeth Mulholland, chief executive officer of Prosper Canada, during a webinar hosted by the Healthcare of Ontario Pension Plan and Common Wealth on Tuesday.
She noted employees need workplace savings plans now more than ever, with the pandemic acting as a huge wake-up call about Canadians’ general financial vulnerability and, in particular, for those in the low-wage or non-profit sectors.
“Forty-seven per cent of workers are freelance, contract or part time and, as a result, 850,000 workers in the non-profit sector have access to no kind of retirement savings plan,” she said. “Financial insecurity is a fact of life for many people in our sector and COVID has obviously made this worse — not just in our sector but for Canadians more generally.”
There’s a huge public benefit in getting the 43 per cent of Canadians who aren’t saving to do so, noted Mullholland, as it would reduce public expenditures down the road, so governments should be racing to facilitate these types of innovative savings plans.
However, there’s also no reason companies can’t build better retirement savings plans because the know-how and innovation are there, she said, noting one of the most important things is to build in the concept of emergency savings.
Various models for emergency savings accounts exist, with the understanding that the funds aren’t left for 50 years. Rather, these accounts are spent and replenished periodically as life happens and the needs arise, she added. Individuals could set a target amount and, when the threshold is met, anything above goes into their retirement savings.
She pointed to research in the U.S. showing that not having access to a liquid account is one of the biggest barriers to people who have modest incomes or a lot of volatility in their month-to-month income to saving for the long term.
Also speaking during the webinar, Eleanor Marshall, vice-president of pensions and benefits and assistant treasurer at Bell Canada, acknowledged the retirement industry can do more and raised the idea of incentivizing debt reduction.
“Another way that could address some short-term financial needs and diversity of those financial needs in the workplace would be incentivizing debt repayment, . . . where the employer matches debt reduction for student loans . . . to address debt reduction and help with those short-term needs.”
By removing employees’ worries about their financial well-being, it’s one less thing standing in the way of their productivity and focus in the workplace and will help avoid the issue of presenteeism, added Renée Légaré, executive vice-president and chief human resources officer at the Ottawa Hospital.