Flexible savings plan make sense in tough economy: expert

'Employer savings plans can resonate better if they help people early in their career pay for immediate expenses and set aside money for retirement'

Flexible savings plan make sense in tough economy: expert

Flexible savings plans that allow younger and lower-income employees to access employer-sponsored retirement programs earlier in their careers could significantly improve financial outcomes and strengthen retention efforts, according to Mercer Canada.

With inflation and affordability issues top of mind for many Canadians, Bernadette Chik, Mercer Canada’s Defined Contribution and Financial Wellness leader, says employers need to reconsider how retirement benefits are structured.

“The rising cost of living is top of mind for the average Canadian worker, and money needs to go towards paying for those day-to-day necessities. And they don't think about retirement, they don't have the luxury to think about retirement,” she tells HRD Canada.

Overall, 74% of Canadians worry they’re not saving enough, according to a previous report from H&R Block Canada.

Income level, seniority and employer programs

Failure to modernize benefits could also affect workers’ appreciation of employer-offered programs, Chik says.

“There is a diverse workforce, and it's important to create programs... that resonate with your workers, otherwise they don't value it.”

Mercer is encouraging employers to integrate flexible savings tools—such as Tax-Free Savings Accounts (TFSAs) and non-registered, taxable accounts—into retirement plans to reflect the varied financial needs of today’s workforce.

Chik notes that while higher-income and older employees often show strong engagement with traditional plans, younger and lower-income workers face significant participation barriers.

“We see that employee utilization of employer-sponsored retirement savings plans... could be even 80% [among] older and higher-income employees,” she says. “In contrast, the youngest and lowest-income employees... participation can be quite a bit lower.”

However, long-term employment does not guarantee comfortable retirement for many workers, based on findings from a recent study. That’s because financial stress is still the top worry for workers aged 40 to 60, according to Healthcare of Ontario Pension Plan (HOOPP).

Flexibility in retirement plans

Here’s how the financial outlook for two workers, with identical income and access to the same potential company match, can differ when flexibility is incorporated, according to Mercer:

 

Here’s how employers can incorporate flexibility in their workplace savings plan:

  • Review the overall purpose of the plan and its intended outcome for members.
  • Review how members utilize the plan, e.g. maximize contributions, voluntary savings.
  • Review the purpose of the various plan vehicles – locking-in vs. access to savings 

“Make a plan to ensure all your employees are retirement-ready,” says Mercer.

Even workers who are financially secure can benefit from diversified savings vehicles that help them reach personal financial goals, says Chik.

“It’s not just on one end of the spectrum... but also for those that are already financially well, you can meet them where they are on their journey.”

She concludes by urging HR leaders to reframe how they think about retirement plans: “Employer savings plans can resonate better if they help people who are early in their career pay for immediate expenses and – at the same time – help them set aside money for retirement as early as possible, which will have compounding effects down the line.”

Many Canadians are not saving enough for retirement, largely due to the cost of living. However, despite Canadians not prioritizing retirement savings, they still hope to have fun post-employment, according to IG Wealth Management