“Retirement First” Approach to Employee Benefits Key to Attracting Talent in the Economic Recovery

New research from HOOPP and Common Wealth makes business case for better workplace retirement plans

A new research report from Healthcare of Ontario Pension Plan (HOOPP) and Common Wealth, The Value of a Good Pension: The business case for good workplace retirement plans, suggests that a “retirement first” approach to workplace benefits may be the key to businesses’ ability to attract and retain talent, and improve productivity.

The report takes a comprehensive look at how businesses can better serve both their employees and their own bottom lines by offering retirement savings plans. The findings result from an in-depth analysis that included: a review of industry and academic literature; 25 interviews with Canadian employers (representing a cross section of businesses and other organizations), industry and academic experts; modelling to assess the business value of offering retirement plans; and HOOPP’s 2021 Canadian Employer Pension Survey of over 800 private sector employers.

“There has been talk recently about whether Canada will see a ‘Great Resignation’ of employees leaving their jobs in pursuit of better benefits and pay,” says Steven McCormick, SVP, Plan Operations at HOOPP. “Many employers may be asking what will set them apart in recruiting valuable talent. Our research suggests retirement savings plans can provide that competitive advantage.”

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Common Wealth co-founder and co-CEO Alex Mazer notes: “A common perspective from HR professionals is that retirement benefits are something to be added only after health benefits and other employee perks are in place. But there is often a strong business case for putting retirement benefits in early as part of a total compensation package.”

Many of the employers interviewed said retirement benefits differentiate them as an employer and if they didn’t offer them, they would be significantly less attractive to prospective hires. Other studies have confirmed this:

• The 2021 Canadian Employer Pension Survey found the vast majority of employers who offer retirement benefits say they are very or extremely important to recruitment (83%) and retention (86%).
• Seventy-nine per cent of all workers (those with and without pensions) said pensions are important for making a job attractive, according to the 2021 Canadian Retirement Survey.
• A 2014 Manulife study found a majority of employees valued a group retirement plan as much as extended vacation, and a majority who belong to a workplace group retirement plan agreed it increased retention and loyalty towards employers.

HOOPP’s 2021 Canadian Employer Pension Survey also found that workplace retirement savings can reduce financial stress for employees, leading to improved productivity. Seventy-three per cent of employers said financially stressed employees are less productive, and 85% of employers offering retirement benefits said they were important to helping in the stress management of employees.

This notion is reinforced by the 2013 report Scarcity: Why Having Too Little Means So Much from behavioural scientists Eldar Shafir and Sendhil Mullainathan. They found there is a causal relationship between financial scarcity and mental function, and that the preoccupation with financial concerns leaves fewer cognitive resources available to guide choice and action.

Financial stress is costing Canadian employers approximately $16 billion annually due to lost productivity, according to The Canadian Payroll Association. Meanwhile, a 2017 Pricewaterhouse Coopers report revealed that some financially-stressed employees can hurt company performance; almost half of distracted employees reported spending three work hours or more per week on financial issues.

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This latest report builds on the 2018 report from HOOPP and Common Wealth, The Value of a Good Pension: How to improve the efficiency of retirement savings in Canada, which found there are five value drivers that make it easier and more efficient for individuals to save for retirement: saving, fees and costs, investment discipline, fiduciary governance and risk pooling. More value drivers included in a retirement plan contribute to greater compensation efficiency. This new report looks at the benefits of improved compensation efficiency from the standpoint of the employer.

By modelling various kinds of plans, the report demonstrates that for an employer seeking to maximize lifetime financial value for its employees, there is significantly more compensation efficiency through workplace retirement models that incorporate the five value drivers, especially if all five are in one plan, like a Canada-model pension plan. When an employer offers a Canada-model pension plan rather than no pension plan at all, a representative worker could increase their pay available for other uses (i.e., not retirement) by an average of 69%.

McCormick said: “Workers in high-quality plans can take home thousands of dollars more in pay each year without sacrificing their retirement security. Employees are happier and focused on their day-to-day work, knowing their retirement is secure; and employers can enjoy improved productivity and staff retention.”

The report closes with ideas for employers to consider when looking at improving retirement outcomes for employees. Suggestions include:

Taking a “retirement first” approach to employee benefits

The Canadian Employer Pension Survey found that retirement benefits rank higher than benefits like health and dental when it comes to attraction, retention and financial stress. This suggests there is a case for employers to make a retirement plan one of the first benefits they offer rather than waiting until they reach a certain size before putting a plan into place.

Focus on value for money

The report outlines six questions businesses can ask themselves to help improve the value for money their plan delivers, including: how can we encourage better and more automatic saving behaviour among employees? And, how can we lower fees and costs associated with our plan?

Mazer said: “We appreciate these have been challenging times for businesses of all sizes. But as we move into the post-COVID economic recovery, there is a case to be made for more employers to adopt retirement plans. Improved retirement outcomes for more Canadians would be good for the economy, good for business and good for employees’ financial health.”

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