According to Statistics Canada, less than 40% of Canadians have a pension plan. In a civilized society, this fact is chilling. More than that, it is akin to employee abuse and should viewed as morally and ethically wrong and without any legitimate excuse. I consider this to be an employer problem more than it is an employee issue. Because it is easy to address and so critical to the long-term financial well-being of the employees, employers should be ashamed that they have failed to implement a plan up to now.
The largest percentage of plan members are either government employees or union members. Quelle suprise? Many large private sector employers provide pensions. This begs the question ‘...why are almost 60% of employees not covered by a pension plan?... In a word ‘neglect’!
Quick review. There are two principal kinds of pensions: defined benefit and defined contribution. In the former, employees contribute X % of their wages to the plan and in return the company guarantees to pay out an amount upon retirement that is based on a combination of years of work, amount contributed and expected payout period. This type of plan is the traditional approach.
The defined contribution plan has the employee contribute X% and the employer promises to match that amount, usually to a limit in the range of 3-5% of the employee’s wage. In both plans, the funds are invested to generate a return for the future. However, with the defined contribution, there is no guarantee on the part of the employers to a specific monthly payment.
In either case, the amount of the employee contribution is made pre-tax and therefore taxable income is reduced at the time of contribution. This means that someone making a 5% contribution will only see a reduction in net pay of about 3% and that amount is more than offset by the employers' matching contribution.
A responsible employer has a duty of care with respect to their employees. It is not just a case of being kind; it is a superb means of attracting and retaining the quality candidates that make a company successful in the long term. It just makes good business sense!
Plans are not difficult to implement and you can work it up over time. Start with offering a match of 2% then move up. But encourage your employees to input the maximum that the tax laws in your jurisdiction allow. As the leader, you are in a position to build financial literacy amongst your staff. Showing that you care about their futures, and investing in those futures, is a key element of being a great employer.
The statistics show that this benefit is not one being widely offered in the workplace. It is a simple and relatively inexpensive way of separating yourself from the crowd.
Responsible, meaningful and forward looking. What’s stopping you now?
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