Evolving demographic shifts are changing the way the way Canadian individuals and companies must think about saving for retirement, said Jean-Philippe Provost, senior partner and wealth business leader for Mercer (Canada) Ltd., at the company’s annual retirement outlook event in Toronto on Wednesday.
Women are one demographic group whose retirement savings require more attention thanks to the increasing adoption of defined-contribution (DC) pension plans. In fact, Provost said it could be argued that the higher level of individual responsibility placed on employees through DC plans can be punitive to women, in particular.
Women who possess these plans would have to save 25% more than men during their working lives to achieve the same ratio of replacement income, he said: “The reality is that a truncated career and an ability to live longer makes it harder for women to achieve the same level of replacement income [as men].”
The growth of the millennial population is another significant demographic shift. Half of the workforce in Canada will consist of millennials in the near future, but only 10% of that group thinks about saving and only 5% have connected their savings habits to preparing for retirement.
There will also be significant growth in a particular type of employee. By 2050, half of the workforce in North America is expected to work as freelancers or independent contractors.
“These are individuals who will have to purchase, on an individual basis, benefits that are currently being offered by employers,” Provost explained. “It’s going to change the dynamic of how people are [saving for retirement] and what [products] they’re buying.”
This shift will also place more attention on fees connected to retail products, which are higher than those connected to corporate pension plans, he added.
With a workforce that’s rapidly becoming less traditional comes a need to introduce a more flexible approach to saving for retirement, which includes how employers and financial advisors approach the topic.
Those who are responsible for helping Canadians save for retirement have to move away from having these conversations once a year or when workplace plans change. Instead, it’s important to look for what Mercer refers to as “moments that matter.”
These moments can include when someone gets a new job, receives a promotion, has begun caring for an elderly relative or has paid off his or her mortgage.
“There are certain moments in people’s careers where they’re more prone to listen, more prone to take certain actions and to change behaviours,” said Provost.
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