Trends: what employers are offering for retirement benefits

Employer Pension Plans are registered plans that provide a source of income to employees
during their retirement.

In a defined contribution pension plan, you know how much you will pay into the plan, but not
how much you will get once you retire. Usually, the employee and employer pay a defined
amount into your pension plan each year. The money in that defined contribution pension is
then invested in on or more ways (on your behalf). You might be able to choose how your
money is invested and the amount you get when you retire will depend on how well the plan is
managed and the performance of the investments.

After retiring, employees have options on where to put their money:

• an annuity
• a locked-in registered retirement savings plan
• or a combo of the two.

If the pension is below a certain amount, an employee might be able to take the money out
as cash and depending on employee age and terms of your pension plan the money can also
be reinvested in other financial plans. The pension plan administrator will usually let you
know what optional are available once you retire.

Trends:
There has been a continued move in the private sector from defined benefit to defined
contribution pension plans. For some employers, this means having to revisit the design of their
plans. When the plans were originally designed, they may have been focusing on cost and
competitiveness of annual contributions, but now that the plans have matured the focus has
shifted to identifying employee readiness to retire and decumulation from the plan.

For example, employees in a defined contribution plan might not have enough savings to retire
on the date they planned or don’t know how to convert their account balance into retirement
income that can last their whole lives. So, employers can provide employees with the tools that
need to measure their own retirement readiness and increase communication to employees
that encourages them to maximize the benefits from the pension. Education will be key so they
can prepare for risks they might face in post-retirement/decumulation. Employers can revisit
plans to ensure it is aligned with their retirement objectives.

 

References:

Financial Consumer Agency of Canada (2020). Employer-Sponsored pension plans. Retrieved
from https://www.canada.ca/en/financial-consumer-agency/services/retirement-
planning/employer-sponsored-pension.html
Benefits Canada (2017). Four pension and retirement trends to watch in 2018 retrieved from
https://www.benefitscanada.com/pensions/db/four-pension-and-retirement-trends-to-watch-in-
2018-108230