Most employees prefer a pension over a pay increase

Employers more concerned about the impact of rising inflation and interest rates on employees than on the organizations

Most employees prefer a pension over a pay increase

Employers in Canada have opted for higher salaries over retirement benefits in order to navigate the challenges posed by inflation.

However, this approach could be putting them at a disadvantage compared to organizations already providing pension plans, and it might not even align with the desires of the workforce, according to the ‘2023 Canadian Employer Pension Survey’ conducted by the Healthcare of Ontario Pension Plan (HOOPP) and Angus Reid Group.

The survey found that employers who were not offering retirement benefits might not fully grasp their employees' attitudes towards pensions. Seventy-seven percent of employers believe their workers would choose a higher salary over a pension. However, previous HOOPP research found that nearly two-thirds (61 percent) of Canadian employees actually prefer having a pension over a pay increase.

“Workers may want pensions even more than their employers know,” says Ivana Zanardo, head of plan services at HOOPP. “Employers want to remain competitive in a difficult labour market and it's easier to stay ahead if you understand, and can offer, what the workers you're trying to attract and retain are looking for in terms of compensation.”

Employers expressed concerns about increased competition for hiring (77 percent), labour shortages (75 percent), and employee burnout (73 percent).

The survey results showed several advantages for companies offering retirement benefits:

Fifty-eight percent of employers who improved or introduced retirement benefits in the past year report higher productivity, compared to only 34 percent of those who don't offer such benefits. · Employers offering retirement benefits are twice as likely to enable their employees to retire at or before age 65 (80 percent), compared to those who don't (42 percent).

· Employers providing retirement benefits consistently rank retention (64 percent) and recruitment (59 percent) as the top benefits of doing so.

· Employers are more concerned about inflation (86 percent) and rising interest rates (82 percent) affecting their employees' financial stress than their impact on the business itself. A majority (82 percent) see retirement benefits as a cost-effective way to reduce employee stress.

A shift in priorities

Demetre Eliopoulos, senior vice-president at Angus Reid Group, notes the shift in employers' priorities.

“We are seeing employers worry more about the impact of rising inflation and interest rates on their employees’ financial stress than on their organizations. They also agree that employees who experience less financial stress have better mental health and wellness. If employers can help alleviate that stress – and retirement benefits are seen as an effective way to do that – it would be good news for their employees and, in turn, their business,” he says.

Despite the growing recognition of the value of retirement benefits, employers not offering them may underestimate their impact. Three-quarters (73 percent) of employers with retirement benefits believed they improved employee productivity, compared to only half (52 percent) of those without such plans.

More employers are recognizing the importance of offering retirement benefits, with 23 percent planning to introduce or enhance them in the coming year, marking a six point increase from 2022. There is also a shift in employers' preferences, with 34 percent now prioritizing improving benefits to attract talent in a competitive labour market, while 66 percent are looking to increase salaries.

For employers not offering retirement benefits, cost (56 percent), limited resources (39 percent), and a preference for higher salaries or other bonuses (30 percent) were cited as reasons.

However, there is a clear consensus among employers that addressing the emerging retirement income crisis is crucial. Eighty-two percent agree that workers without access to good pensions will become a burden on taxpayers, while 79 percent say the economy will suffer without adequate pensions. Furthermore, 76 percent agree that businesses have a responsibility to offer a pension plan for workers to achieve an adequate retirement income.

“It’s encouraging to see momentum continue to build for retirement benefits,” says Zanardo. “The hope is that dialogue between businesses, government, the retirement industry, and workers will help employers overcome obstacles to offering retirement benefits.

“Greater access to retirement benefits could help give employees long-term stability in an ever-changing economy, while helping employers experience the well-documented improvements to recruitment, retention, and productivity that come with them.”