A recent survey of Canadian workers by pension consulting firm Towers Watson found that economic uncertainty is fueling fears among workers that they won’t have adequate income in retirement. This has made employee savings plans increasingly valued by employees of small businesses, as well as an increasingly important benefit that employers can use to attract and retain good long-term workers.
The survey found 50 per cent of workers with a traditional defined benefit (DB) pension plan, which pays a guaranteed level of income in retirement, identified their pension plan as a key reason for joining their current employer.
But just 30 per cent of workers whose companies have a defined contribution (DC) plan or a group RRSP said the programs were a key factor in taking their jobs. Those plans, which are more prevalent in the private sector, do not pay a guaranteed level of income in retirement but vary depending on the performance of the investments chosen by the participant.
“As financial insecurity becomes more widespread, Canadian workers are increasingly interested in a secure rewards package with retirement benefits they can count on,” said Ian Markham, retirement innovation leader at Towers Watson.
The survey also found pension plans play a growing role in retaining existing workers. Depending on their ages, between 62 per cent and 71 per cent of Canadian DB plan members said their pension plan is a compelling reason to stay with their current employers, compared to 30 to 50 percent with DC pension plans.
The findings reinforce the fact that companies with DB pension plans can achieve a more stable work force than those with a DC plan, and suggests companies with traditional pensions should highlight that advantage to prospective employees.
The survey also found that one third of Canadian employees would be willing to sacrifice part of their pay in return for enhanced retirement security, and one in four would give up a bonus in exchange for additional retirement benefits.
The fact that so many workers would trade pay for better retirement security is an indicator of the significant unease that employees have about their ability to save for retirement. The obvious benefit of a payroll savings plan is that it fits the ”pay yourself first” process that financial advisors promote, as money comes off one’s paycheck tax free into an RRSP before it gets spent on other things. Plus regular monthly deposits into an RRSP are a much more efficient way to build savings with the significant benefit of dollar cost averaging over lump sum contributions.
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