Employers expected to redefine pension benefits and look at new ways to promote retirement saving
Mercer, a global consulting leader in advancing health, wealth and careers, and a wholly-owned subsidiary of Marsh & McLennan Companies (NYSE: MMC), today launched its 25th Annual Retirement Outlook and Fearless Forecast series with an event in Toronto, projecting the retirement industry is poised for change in 2017 as more employers look at new approaches to meet the evolving pension landscape and employee demands.
There are more than 5,000 new retirees across Canada each week, a figure that is expected to rise by 60 per cent to reach 8,000 retirees per week by 2020. While Canada is still one of six countries in the world – alongside Finland, Israel, Portugal, Turkey and Ireland – with defined benefit pension assets making up more than 50 per cent of the funded pension system in the respective market, the picture will change over the coming years as capital accumulation plans, also known as defined contribution (DC) plans, continue to be a more popular choice for companies who provide retirement benefits to employees.
“The industry faces challenges that require industry leaders, corporations and various levels of government to work together on new solutions and products that will help Canadian workers achieve a comfortable retirement,” said Jean-Philippe Provost, Senior Partner and Wealth Business Leader for Mercer Canada. “Employers need strategies to free up resources so they can invest in future cohorts of workers, while at the same time identifying new ways to deliver DC plans effectively.”
Thanks to improved economic conditions at the end of 2016, Mercer predicts 2017 will be a record year in the group annuity purchase space as sponsors of defined benefit plans continue to explore necessary steps to de-risk their plans.
“Managing the legacy pension obligation is going to be a priority for defined benefit plan sponsors, as a quarter of the Canadian population will be over 65 by 2020,” said Provost. “We saw nearly $3B worth of group annuity contracts bought in 2016 and we expect this market to grow in 2017 as new solutions are now available to meet the needs of plans of all sizes.”
Solutions like the Mercer Pension Risk Exchange™ will play a significant role in enabling this massive industry trend. Introduced in February 2016, the Mercer Pension Risk Exchange is an online marketplace aimed at revolutionizing the bulk annuity market for defined benefit pensions in Canada. The first of its kind, the solution brings together plan sponsors looking to lower risk and insurers of group annuities, simplifying the process, improving transparency and reducing costs. Since its inception one year ago, the Mercer Pension Risk Exchange has supported the placement of 45 per cent of group annuities purchased by Canadian plan sponsors.
“Historically, employers have structured communications related to retirement savings around traditional milestones like marriage, starting a family and supporting children,” said Provost. “People may or may not be doing these things in this order or at all. Employers will have to drastically rethink how they interact with employees. There are moments in employees’ lives when they are more open to listen and take action; at Mercer we call these, ‘moments that matter’ and we expect over the coming years, a significant shift towards that direction.”
As more plan sponsors shift their approach to delivering capital accumulation, they’ll also need to identify new ways to increase employee engagement in retirement savings. This is especially important given the reality that many workplaces include five distinct generations of employees as well as a growing number of independent workers and contractors. Giving employees more impactful default options, embedding auto-escalation of contributions over time and an element of individualized auto-enrollment are going to be in high demand to make retirement savings simplified for Canadians in 2017. Employers will be seeking that helping hand to better manage these employees’ needs.
The retirement space in Canada is going through unprecedented challenges which will require, employers, employees, regulators and leaders from coast to coast to work together on solutions. “As we look back, the current solutions in the capital accumulation space do not fully address the many challenges faced by employers and employees. Whether it is dealing with regulatory complexity, access to high quality investment at lower cost, drawdown products that ensure better sustained retirement. Mercer is excited to be launching in 2017 a new offering that will address these challenges and will ultimately lead to more Canadians reaching a more comfortable and sustainable retirement.”
Mercer Canada’s 25th Annual Retirement Outlook and Fearless Forecast events are scheduled across the country between January 18 and February 8, 2017. For more information please visit: https://www.mercer.ca/en/our-thinking/retirement-outlook.html.
Mercer is a global consulting leader in health, wealth and careers. Mercer helps clients around the world advance the health, wealth and performance of their most vital asset – their people. Mercer’s more than 20,000 employees are based in 43 countries and the firm operates in over 140 countries. Mercer is a wholly owned subsidiary of Marsh & McLennan Companies (NYSE: MMC), a global professional services firm offering clients advice and solutions in the areas of risk, strategy and people. With annual revenue of $13 billion and 60,000 colleagues worldwide, Marsh & McLennan Companies is also the parent company of Marsh, a leader in insurance broking and risk management; Guy Carpenter, a leader in providing risk and reinsurance intermediary services; and Oliver Wyman, a leader in management consulting. For more information, visit www.mercer.ca. Follow Mercer on Twitter @MercerCanada.
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