Canada Life's Ryan Richard highlights why employers are redesigning retirement plans around financial flexibility
As traditional pension plans continue to decline in Canada, Ryan Richard is watching a new kind of retirement strategy take shape and he’s helping employers lead the shift.
Over the past three years, Richard, who’s a business development lead for group savings at Canada Life, has seen a clear shift in what employers expect from group retirement plans. As he explains, “flexibility” is the word that keeps coming up and it’s changing the retirement landscape, especially when it comes to how and when employees can access their savings.
That demand has brought changes to plan structures, with employers increasingly looking to include Tax-Free Savings Accounts (TFSAs) alongside more traditional vehicles like Registered Retirement Savings Plans (RRSPs).
“What plan sponsors want now are flexibility for their members, which comes kind of at a cost,” Richard said. “They say, ‘Well, these members are 25 years old and [if] they join a registered pension plan, they don't see any money until they're 60 or 65.' Nowadays, people don’t have as much disposable income. It's also harder for people to save for a down payment on a home. As a result, a TFSA has become more of where the money's available for members now more so than in the future.”
While employers are prioritizing flexibility over tradition when it comes to retirement plans, that also means shifting away from rigid defined benefit (DB) and defined contribution (DC) pension models and toward savings options like TFSAs that give employees more control over their money, notably in the face of financial emergencies. As a result, employers are becoming more sensitive to the broader financial realities their workers face, Richard explained.
“We’re really seeing a movement away from registered pension plans,” Richard said, noting that he’s seen several employers shutter their registered pension plans (RPPs) entirely, replacing them with simpler RRSP-DPSP (Deferred Profit-Sharing Plan) combinations, suggesting the primary reason as administrative fatigue.
“They don’t want an added administrative burden on the people,” he said. “It’s getting difficult for employers to keep up with that… Let’s say someone has an unexpected medical expense. If they have to draw on their RRSP, that’s a big payment of tax. Whereas, if they can get to a TFSA, withdraw tax-free, and there’s no penalty, that’s a lot easier.”
This shift reflects a broader change in mindset. Plan sponsors are no longer focused solely on retirement but on employees’ entire financial wellbeing. Additionally, most workers don’t max out their TFSAs on their own, so employers are stepping in to help by offering contribution-matching structures that include TFSAs.
In some cases, contributions are being split equally between RRSPs and TFSAs, with no restrictions on withdrawals. The attitude from employers is increasingly that the money belongs to the employee - whether it's used for retirement or urgent personal needs.
While DB and DC pension plans remain in place in sectors like unionized trades, where they are an expected part of compensation, Richard believes that in the private sector, there is a clear phase-out underway, at least for outside public institutions. DB plans are costly and risky and require funding shortfalls to be covered by the employer if the plan runs a deficit whereas DC plans are somewhat more manageable but still come with significant regulatory requirements, noted Richard.
From plan amendments to annual filings and compliance with strict contribution rules, the administrative workload around DB and DC plans is considerable. Contrastingly, RRSP and DPSP setups are far less rigid. They offer general guidelines rather than hard rules, which means employers can offer customized benefits without triggering legal or regulatory issues.
But this flexibility also isn’t without trade-offs as pulling money toward short-term goals can mean diverting funds from long-term retirement security. Richard also flagged the hesitancy among employers to mandate participation, which he sees as a misstep. While flexibility is valued, voluntary plans often lead to low enrollment, particularly among younger employees who may not grasp the long-term value of matching contributions.
“Employers don't want to really push employees; they want to make everything voluntary. But a lot of the time, if you give the member the option, they may not join the plan. They just think, ‘Well it's five more per cent on my salary’ but they're not thinking you're getting an additional five matching, so I like the hard-line organizations that say, ‘This is mandatory,’” noted Richard.
Richard believes that retirement savings should be built into the employment experience from day one and not left entirely to employee discretion. He sees real value in making at least a small portion of retirement contributions mandatory, ideally tied to the onboarding process, noting how difficult it can be for workers to adjust their spending habits later in their careers to start contributing meaningfully.
“Nobody has come to 55 years old and said, ‘Oh, I’ve saved too much for retirement’,” he said.
According to Richard, the financial pressures employees are facing are being felt across the country. Rising costs and limited wage growth have led to a growing demand for savings plans that allow for both long-term security and short-term access.
He believes group plans structured with a mix of RRSP and TFSA contributions can offer that needed balance. For example, a typical model might see 5 per cent of employer contributions go to an RRSP and another 2 per cent to a TFSA, giving members some liquidity without abandoning retirement goals entirely.
Richard believes for employers committed to offering a true retirement vehicle, they’re still the most rigid and protective structure. But for most plan sponsors navigating today’s economic conditions, flexibility is winning out.
“Considering the whole landscape of Canada, how incomes are not keeping up with the rest of the world, people need access to cash almost instantaneously,” he said.
