Canadian pension plan sponsors are acutely aware of, and concerned about, the risks to a secure post-retirement income for employees, according to a new report from Aon Hewitt.
The provider of global talent, retirement and health solutions reveals in its latest research that most defined benefit (DB) surveyed plan sponsors (75 percent) rank risk management as the top priority, including the risks related to compliance, fiduciary, and asset-liability.
The report’s release comes on the heels of an announced expansion of the Canada Pension Plan (CPP), which will add new payroll taxes to boost benefits while fulfilling a key pledge made by Prime Minister Justin Trudeau in the 2015 election campaign.
Beginning in 2019, the CPP contribution rate will steadily rise over five years to 11.9 percent — split between a worker and employer — from the current 9.9 percent/ The maximum pensionable earnings cap, currently C$54,900 ($42,900), will also increase through indexation.
Aon Hewitt’s “Hot Topics in Retirement-Canada” survey polled employers covering nearly 1.5 million pension plan members. The report highlights 6 ways in which employers are helping employees achieve their retirement and financial well-being:
Canada Pension Plan: 87 percent of respondents prefer an expanded CPP over Ontario Retirement Pension Plan (ORPP) as a better and more efficient vehicle to boost retirement savings for Ontario employees.
Financial well-being: Almost three-quarters (71 percent) of employers are likely to create or focus on employees’ financial well-being in ways that expand beyond retirement decisions. The top three financial wellness tools employers would like to offer are education on the basics of financial markets, financial planning and healthcare planning.
Decumulation: 47 percent of capital accumulation plan (CAP) sponsors are likely to encourage lifetime income, whereby they would support the process of allowing participants to convert account balances to lifetime income. Increased uptakes are expected in the future.
Income adequacy: 43 percent of CAP sponsors intend to measure the projected retirement income adequacy of their plans-an 18 percent increase since 2013. When it comes to all plan sponsors, almost half (49 percent) say they plan to measure members’ income adequacy in retirement.
Focus on competitiveness and design: 63 percent of employers said that they are likely to measure the competiveness and design of their retirement program, a 10 percent increase since 2013.
Defined benefit plans sponsors are in it for the long haul: 75 percent of DB plan sponsors are not expecting to make design changes to their current plans.
“Effective management of risk begins with awareness of the issues and a commitment to understanding them,” says William da Silva, senior partner and national retirement practice leader, Aon Hewitt. “While this year’s survey shows that plan sponsors are concerned, it also demonstrates their commitment to measuring plan effectiveness and retirement outcomes, as well as educating plan members. This is a huge leap forward, and bodes well for the financial security of Canadian pensioners in the future.”