Posted on March 9th 2021 - Jason Desaulniers
Retirement planning is, ultimately, your employee’s responsibility. However, as an employer, you can help your employees by showing them exactly what they need to plan their retirement and what resources they have available.
With the average age of retirement in Canada being 64, you need to be sure that you are providing guidance to your employees for their successful exit into retirement.
When you’re trying to make retirement less confusing for your employees, consider bringing in an expert to help coach your team, and HR management, so they know exactly what to do and say to your staff.
You can also host information sessions, provide them with detailed information booklets and be there when they need to ask questions.
Remember when you’re talking to your employees try to:
- Be engaging
- Be informative
- Simplify complex terms
- Be straightforward
It’s also important to encourage your employees to return, review, and revise their pension as often as possible so they can make sure all of their information is correct and reflects their latest plans and goals for the future.
If your employees are confused about where they stand financially, or what the next steps are for their retirement, suggest that they talk to a retirement expert to help sort out all the little details.
By helping them prepare for their retirement your employees will be happier in their position, more likely to stay long-term, be more motivated to perform well, and ultimately, you’ll actually benefit as a company by helping them.
Guiding employees through their retirement plan, you’ll be able to gain some positive outcomes for your business.
You’ll be able to:
- Reduce employee stress
- Improve employee wellness
- Increase employee satisfaction
- Boost productivity
Most employees will happily trust the advice and recommendations provided by their employers.
So how can you help your employees plan for their retirement?
Take a look at these five key points on how you can provide your employees with the help and resources they need to understand their retirement.
1. Encourage employees to start a plan of action
Before your employees start making any solid decisions about their retirement you, as their employer, should encourage them to put together a detailed plan of action.
The current average age of retirement in Canada is 64 and a lot has changed since your staff entered the workforce. Both the average income and the cost of living were lower when they first entered work. It’s grown gradually over the years and will continue to grow after they’ve retired.
Get your employees to imagine what the cost of living is going to be like in 20-30 years’ time. Will they have enough cash to cover the increase in living expenses?
Provide them with examples of how a budget looked a decade ago and how it looks now.
Show them the increase in the cost of living and explain to them why it’s important to take into consideration when planning your retirement.
Talk to your employees and explain to them how they should put together a retirement plan. Provide them with all the assets and resources they need for it including information on how the cost of living will go up.
Take a look at this comparison of the cost of living in 1972 compared to 2021 to get a better idea of what it’s going to be like when your employees are retiring.
The cost of living typically increases by around 2% each year. This should give your employees a rough idea of how much they should have put aside from their pension to be able to afford everything they need.
What should a retirement plan look like?
Your employee’s retirement plan should always include:
- How much income they’ll need to meet their living expenses in the future (day-to-day, bills, food etc.)
- Discretionary income for holidays and hobbies
- How much their income changes over time
After putting this together your employee should work out whether they have a sufficient amount of savings to meet these needs.
They can do this by looking at all of their assets including:
- Their pension
- Deposit accounts
- Savings accounts
Take a look at this example to help figure out how you can help your employees work out if they have a sufficient amount of savings.
The average Canadian contributes $3,518 a year to their RRSP which means they’re roughly putting $293 a month into their RRSP.
If your employee were to save a bit more, let’s say $430 a month, then they’d be able to contribute $5160 a year to their RRSP.
Here’s a simple table to show you how much money you’d be putting into your RRSP from when you start to when you retire. This is a handy guide to show your employees how their money will grow in their RRSP over time. It might be scary lodging a certain amount of money, especially if it’s on the higher side, but it will benefit them in the future.
Here’s a handy RRSP calculator that you can give to your employees to help them calculate their RRSP.
2. Ensure employees understand their retirement income options
Employees that have a defined contribution pension (DC pension) will have to decide how they want to access their income.
Do they want it to be accessed through:
- Income drawdown
This is one way of getting your pension income when you retire. It allows your pension fund to keep growing. How it works is: instead of using all the money in your pension fund to buy an annuity (see more about this in the next point if you’re not sure what it is) you leave your money to sit and just take a regular income from the fund directly.
- Buying an annuity
This is a type of retirement income product. How this works is you buy an annuity with some or all of your pension and it pays a regular retirement income for the rest of your life or for a set period of time.
- Cash lump sum
A lump-sum payment is where you take out a large amount of your pension fund instead of getting it in installments.
Alternatively, your employee can choose a combination of these options when it comes to accessing their pension.
As an employer, you should take it upon yourself to ensure that your employees understand all of the retirement income options that are available to them.
Try to offer easily accessible educational services for your employees while they’re trying to process their retirement plan. This can include one-on-one meetings to discuss their options, which will help employees understand the choices they have and how they work.
You can also host larger educational sessions and regular wellness screenings to help all your employees understand the process of organizing their retirement.
3. Provide your employees with communication all year round
Communication is crucial for your employees during this time, but sometimes it can be hard to ask for the assistance they need.
If you’re going to take the steps and offer financial wellness programs and tools to your employees then it’s absolutely essential that you provide them with clear and consistent communication opportunities.
Communication should be the center of what you’re offering. It’s not good enough to just communicate during financial wellness sessions or during the tax season. You want to make a lasting impact on your employees and be there when they need your help the most.
Help your employees make more informed decisions by providing them with the necessary resources and information they need, when they need it.
You could consider bringing in a third-party consultant during different stages to see where your employees are at with their retirement process. This will also help improve health and wellness within your workplace and make your employees feel more confident about you as an employer.
You should also make sure that your HR department and benefits experts are easily accessible to answer questions and offer guidance to all of your employees whenever they need it.
4. Help them understand the tax rules
How will your employee’s income get taxed after they retire?
It’s a big question and many of your employees might not have a clue about where to begin. 74% of people worry about not having enough income when they retire and quite a lot of people don’t know how retirement income is taxed.
As an employer, you should try to educate your employees on how retirement income is taxed. Help them understand the tax rules for retirement income so they’ll feel more confident about their future.
For example, a Registered Pension Plan (RPP) must follow the rules in the Income Tax Act and comply with federal and/or provincial benefits standards legislation. Your employees might not know this so make sure you provide them with all the resources they need to stay educated about their tax.
Canadian tax changes for 2021
There are several tax rates and limits that are changing in 2021. You should try to make note of this and have it on hand in case your employees need to know about it in regard to their pension.
Here are five changes you should make your employees aware of:
- Federal and provincial income tax brackets are increasing
- Employment Insurance (EI) Premiums are staying at 1.58%
- Maximum insurable earnings are increasing from $54,200 to $56,300
- Maximum pensionable earnings is increasing to $61,600 in 2021 from $58,700 in 2020
- The employee and employer contribution rates for 2021 are increasing to 5.45%
What changes can you expect to see when you retire?
When you retire, you’ll have to pay the following taxes:
- Tax withheld at source
If your main source of income after you retire is from a pension then you could have enough tax withheld at the source to pay any tax that’s owed.
- Income tax by instalments
If you’re receiving income from other areas as your main source of income or if you’re on particular pensions then you might have to pay your income tax by installments.
- Social benefits repayment
You might have to repay your old age security (OAS) pension or your net federal supplements when you file a tax return if your total income exceeds your yearly threshold.
You can find out more details about what tax needs to be paid when you retire or turn 65 years old here.
5. Help them avoid pension scams
There are different types of pension scams but all of them can cause people to lose a lifetime’s worth of savings in a single moment. Help your workforce avoid losing their life savings by making them aware of these scams.
The best way to do this is to make them aware of what to look out for and to teach them how to avoid pension scams.
Here are some helpful links to information on spotting (and avoiding) pension scams you can share with your employees:
- Alberta Treasury and Finance Board guide to pensions
- Manitoba Finance’s guide to avoiding pension scams
- Covid-19-related pension scams
If you’d like to protect your employees from running into potential pension scams then consider printing out a warning list with the above information on it. This way you can help them be prepared for any scam artists they might encounter.
Talk to BP Group Solutions advisors about retirement options
If you’re looking for somebody to help you provide the right retirement plan information for your employees, our team of advisors is here to help. We’d love to talk to your employees to figure out what their best options are.
With offices in Cold Lake and Ft. McMurray, BP Group Solutions is strategically located to provide employee benefit solutions and personal advice for people and businesses across northeast Alberta — with guaranteed responsive, face-to-face service. Let’s work together.