Employers can leverage choice and financial education to help close the retirement gap among the Black, Indigenous and people of colour community, says Janice Holman, a principal at Eckler Ltd.
A 2021 study by the Canadian Centre for Policy Alternatives, which analyzed data from the 2016 census, found racialized seniors were most reliant on public pensions, accounting for 40 per cent of their income, compared to 34 per cent for white seniors and 25 per cent for Indigenous seniors. And according to a Statistics Canada labour force survey from September 2020, low-income employees accounted for an above-average share of all workers in most of the population groups designated as visible minorities.
Defined benefit and defined contribution pension plans are locked in and are the least flexible plans on the market due to mandated contributions in many cases, says Holman, noting a group tax-free savings account is a much more flexible option for low- and moderate-income earners because individuals can access the funds when needed. If a person remains at a fairly low income for their lifetime and doesn’t accumulate much in the way of retirement savings, she adds, a group TFSA won’t affect their government subsidized benefits in retirement.
Another savings vehicle that’s becoming more prevalent is a retirement savings plan with a student debt repayment option. In this arrangement, either the employer or employee contribution goes towards paying down the student loan, while the other is directed to retirement savings. Holman notes many people in the BIPOC community may not benefit from intergenerational wealth transfer so they’ve amassed student debt in order to pay for post-secondary education.
“Now that there is a broader array of plans available, employers are re-evaluating their [options] to see what works best for their workforces. Helping employees meet their current financial needs, while also [helping them] save for their retirement . . . will get them to a much better financial position.”
If employers can create good savings behaviours among their employees early, they’ll continue that behaviour throughout their working career. “Yes, they might use some [TFSA savings] for something other than retirement, but maybe that’s the best use of their resources at this point in time. . . . If [employers] can get people to . . . learn how to save and build an emergency fund, . . . they will be on a better path to financial wellness than if [they] offer a pension and [employees] decide they can’t contribute . . . because they may need the ability to access their money.”
Tyler Downey, secretary treasurer of the Service Employees International Union Healthcare, agrees. The union’s MY65+ plan is a group TFSA available to all of its employees and union members. Over the last two years, he’s aware of only two withdrawals out of the hundreds of members enrolled in the plan. “What that tells me is . . . get them in, start them small and just let them go.”
Financial education is also key, says Holman, adding these programs should be inclusive to all employee groups and approached from a diversity, equity and inclusion perspective. “Trust in the financial system is a huge barrier to people absorbing and taking action on the financial planning information they might gather.”
Simplicity is important, says Downey, suggesting employers focus the conversation on the importance of retirement security and how saving $30 or $40 a month for the next 20 to 30 years can help them reach their retirement goals. “It’s really [connecting it] to the individual [to] help [them] get over their fears of starting [to save]. . . . Once they . . . pick up the habit, it becomes a longer-term [behaviour].”
When employees can’t afford to retire, workforce management becomes a real struggle for companies, says Holman, noting it poses a morale risk to younger workers when older employees can’t vacate senior positions. It could lead to increased benefits costs and disability leaves, as well as absenteeism and presenteeism stemming from the mental-health impacts of financial stress.
“It’s one of the biggest issues employers are going to be dealing with for the next 10 to 15 years, especially in these difficult economic times.”