With November known as Financial Literacy Month (FLM), it is a meaningful time to write on the topic of retirement preparedness particularly for many Canadians facing decisions about whether to continue working or make the transition into retirement.
For some, they might be standing on solid footing with their plans well established and investments well managed. For others, it is a time of increased stress and anxiety as their inability to make financial choices earlier in life has finally caught up with them. They didn't win the lottery, and there was no wealthy estranged relative who bequeathed them a tidy inheritance. They now find themselves in need of a Plan C.
With 10,000 North American Baby Boomers continuing to retire each day, surveys on the topic for retirement readiness become more prevalent. Consistency in the survey results is not surprising. The majority of people worry about whether they've done enough to plan effectively for that big day. While these worries are personal, there are many reasons why employers should care.
1) Worries about having enough saved for retirement inhibits productivity for those actively still at work. Anxiety about finances impacts energy, focus and confidence in the workplace.
2) If an employee can't retire based on his current savings, he may stay in the workplace longer than others producing greater results as highly effective contributors. Staying only because one can't afford to leave creates disengagement and the potential for an unhealthy succession bottleneck that may cause a ripple effect for younger workers who don't believe they have a clear path for advancement.
3) The cost of benefits increase with an aging workforce as the potential for chronic disease and other health issues puts more strain on costs associated with employer sponsored benefit programs.
While there are many studies targeting retirement preparedness, I'm highlighting two -- the 2014 Conference Board of Canada Study and the Ontario Securities Commission, Retirement Readiness, Canadians 50+.
In 2014, The Conference Board of Canada study polled over 2000 people. The results revealed that more than 40% of respondents had no clear understanding of exactly how much they needed to save for retirement.
Other highlights of this survey reveal:
a) 60% of respondents feel they haven't saved what they need for their retirement years;
b) More than 1/3rd of Canadians don't know when they will be in a financial position to retire;
c) More than 40% of employers think their workers are overly optimistic about when they will be in a position to retire;
d) 60% of existing retirees think they have enough retirement savings to meet their needs, but believe they might have financial difficulties over time.
The second survey was commissioned by the Ontario Securities Commission (OSC). Polling over 1,471 Canadians aged 50 or older, it found that 22% of these surveyed Canadians hadn't started to save for retirement and 31% of those who had started saving, felt they were behind in their retirement plan. Similar to the Conference Board of Canada Study, 38% of the OSC survey respondents reported they had no idea how much money to save for retirement.
When asked how they are saving for retirement, 36% of respondents shared that they rely on an employer-provided pension plan and 25% said that they will rely on the Canada Pension Plan or Quebec Pension Plan as well as Old Age Security as their primary post-retirement income stream. Of the pre-retirement survey respondents, 40% believe they will be in worse financial shape in retirement and that their standard of living would be compromised.
This human capital issue remains an individual one, yet with employees spending so much of their waking hours in the workplace, employers have the ability to influence the information and resources made readily available to their teams.
Helping workers feel more confident and well informed about retirement planning is in everyone's best interest. There are increasingly more free tools available to support retirement preparedness and we invite you to contact us to explore what might best apply to your workplace. As always, we're here to help so that you can focus on what you do best.
With all the discussion about the need for enhancements to CPP, the reason behind it is the motivation for this blog topic. It is widely believed that many Canadians struggle with financial literacy and don't take an active role in effectively managing their finances or saving enough to meet their retirement needs.
What is surprising is that Canada's average debtor may not be who we think. New data released by Statistics Canada and highlighted in the infographic associated with this post, suggest that those most in debt are well educated and think of themselves as quite financially literate. They aren't those with low income or little education. The data reveals that they understand the debt they have taken on and they believe they can afford to pay it off.
Canadian debt is on the rise with savings not in a place that has the feds or the provinces feeling that they couldn't help but intervene in the form of forced savings through the CPP enhancement. With November being Financial Literacy Month (FLM), it is an timely opportunity to remember that it is never to early to start discussions about the importance of money management and what financial preparedness entails.
When considering the money landscape, it has been reported that 1 out of 3 Canadians struggle to keep up with their finances and when we zero in on youth and money, 60% of youth report carrying some debt and one third owe more than $10,000. Credit card debt and student loans are the top two categories for Millennials.
The Financial Consumer Agency of Canada (FCAC) has a national strategy to help Canadians become more aware of the importance of financial literacy. They are inviting us to join the conversation on social media using the hashtag #CountMeInCA to share tips and to tell them what we're doing or what resources we're using to manage our money and debt responsibly as well as how we're saving for the future.
The FCAC offers a 4 step process for improving financial literacy:
1) Take the self assessment quiz. This short and free quiz helps to test one's financial literacy skills and reveals how you compare to other Canadians based on their responses.
2) Search on the Canadian Financial Literacy Database. It holds a range of financial topics related to budgeting, money management, saving, investing and more.
3) Take action and build a financial literacy "to do" list.
4) Participate in Financial Literacy Month.
Learning more about financial literacy and creating breathing room to save for the future starts with gaining knowledge and confidence through good money management and a strategic approach to debt reduction. With so many Canadians struggling to make end meets with pressing financial obligations, the idea of saving for the future often doesn't seem like a realistic priority.
As with anything that seems too much for one person to manage alone, seeking help and guidance with financial preparedness is no different. The FCAC website provides a list of questions to ask when looking for professional advice.
We're ready to answer your questions. For over two decades, we've been helping companies with their retirement savings programs along with ways to improve financial literacy in the workplace. We invite you to contact us. We're here to help so that you can focus on what you do best.
*source - Finance Consumer Agency of Canada
Employment Insurance Program waiting period reduction: What can a one week change mean to employers?
The Liberal government has taken action to make sweeping changes to our Employment Insurance (EI) Program where the combined total cost is estimated at $1.45 billion for 2017.
While several of the EI program changes have already taken effect, one that is more complex won't kick in until January 1, 2017. The Budget Implementation Act 2016, No. 1, received Royal Assent on June 22, 2016 and reduces the EI disability coverage from two weeks to one week.
What is the EI waiting period?
The EI waiting period is a period of time that must be served before a claimant can begin to receive EI benefits and it has been set at two weeks since 1971.
What is the EI payment period?
The EI payment period is 17 weeks and includes a 2-week waiting period where no benefit is paid. A total of 15 weeks of paid benefits is factored into the 17 weeks.
What changes happen to the EI Program on January 1, 2017?
The January 1, 2017 changes mean that the payment period will include only a 1 week waiting period where no benefit is paid followed by a 15 week period of paid benefits. This change results in only a one week period of no paid benefits.
Of note, the number of weeks of benefit is not changing and there are no plans to change the timeframes that employers need to issue records of employment.
What could a one week difference represent for employers and service providers as well as Canadians in need of this benefit?
According to The Honourable MaryAnn Mihychuk, Minister of Employment, Workforce Development and Labour, reducing the two-week waiting time is "a systemic change. It impacts skills programs. It impacts other associated support. That's very complicated." This complex change is good news for claimants who will be without income for a shorter period of time if they apply for EI, but the change require additional work on behalf of employers and service providers who need to consider the impact to employee communications, handbooks, existing disability plans and collective agreements. It could mean that insurers will ask for an LTD premium adjustment for employers opting to shorten the LTD elimination period from 119 to 112 days . Employers face the question of whether or not they wish to absorb a potential cost increase.
What if you have a registered plan with the EI Premium Reduction Program?
If you have a plan registered with the Employment Insurance Premium Reduction Program you will need to reduce the waiting period for Weekly Indemnity (WI ) and/or Short-Term Disability (STD) benefits from 2 weeks to 1 week in order to ensure the preservation of EI premium reductions. This change may represent a cost increase and will depend on the benefit plan design and use.
What about insured STD or self-insured salary continuance plans?
If you have a plan with a waiting period of 7 or fewer days there is no impact to you and no action that needs to be taken.
If you have a plan with a waiting period of more than 7 days, please contact us to discuss the implications.
What about requirements for Supplementary Unemployment Benefit (SUB) Plans?
SUB plans -- also known as EI top-up plans -- are tied to EI claims linked to layoffs, EI sickness benefits, maternity and parental leave and compassionate care. For existing SUB plans, this change may reduce costs as employees will be able to access EI benefits earlier during their leave period. It depends on the duration of the SUB plan benefit payments and utilization. If you have specific questions about your SUB plan, please contact us.
What does this mean for employer-sponsored Long Term Disability (LTD) Benefits?
Many employers structure their LTD program with benefits beginning only after a claimant uses up EI sickness benefits or after the 17 week elimination period or 119 days. This means that sickness benefits will run out at 16 weeks or 112 days. If you offer LTD benefits that starts after the 17 week of EI, consider if an amendment to the plan is warranted given that employees will have 1 week where no benefit is paid.
As 2016 draws to a close, employers will need to consider if the change impacts their current benefit program. Good news for employees comes from Service Canada who advises that the Canadian Life and Health Insurance Association (CLHIA) will give impacted employers a transition period to make the necessary amendments to their plans AND they will continue to qualify for the EI Premium Reduction Program during the transition period.
We are keeping a close watch for any EI Program updates so we remain well positioned to offer timely support regarding the implications to employer-sponsored salary continuance and disability benefit plans. We want to ensure your program runs smoothly and we invite you to contact us if you have any questions. We're here to help so that you can focus on what you do best.
Dave Dickinson, B.Comm, CFP, CLU, CHFC
Experienced Benefits Specialist ready to optimize your group benefits and pension plans.