In recent times, life expectancy has increased and financial stresses are like never before. Leading to people having longer working lives than ever. However, one day they'll choose to retire. As an employer, you have a duty of care to support them in making this next step in their life.
Failure to do so can lead to unwanted stress and negative effects on your company, such as a dip in employee morale.
In this guide, we'll discuss reasons for retirement, how you can help your employees make a secure start to life post work and everything you need to know about pensions.
What is Retirement?
Retirement is when an employee chooses to leave the workforce and enjoy the rest of their life. People use their retirement years to start new hobbies or do things they couldn't usually do whilst working.
What is the Retirement Age in Canada?
There's no set retirement age for employees in Canada. Although the majority of people retired at 64 and a half years in 2021, as per Statistics Canada. With the average for self-employed workers being 67 and a half years.
However, there's nothing stopping employees from taking early retirement if their life circumstances change.
Reasons for Retirement
There are many reasons why your employees will choose to retire. Such as:
- Employees with poor initial health, or worsening health.
- Retiring to become a full-time caregiver for a family member.
- Workers who have been temporarily laid off or whose spouses have retired early.
- Wanting to enjoy more time with loved ones, for example, grandchildren.
- The job role is physically demanding.
- They have enough savings to live off.
You should also help your employees with their retirement planning.
What is Retirement Planning?
Retirement planning is the process of helping your employees with the transition between their working years and retirement. This can be outlining retirement plans, and retirement goals and helping them to enjoy their golden year.
This period of time can be stressful for your employees. By providing excellent retirement planning - you can ease any worries regarding financial and social security.
Why Should Employers Help Employees Plan for Retirement Life?
As an employer, you have a duty of care towards your employees. This doesn’t mean just the time they’re working for you but also helping them in planning for retirement life. The thought of retirement can be stressful for some people, so any help you can provide them can go a long way.
Helping them can also lead to a range of benefits for your company. For example, retirees may recommend others to work for you after they leave.
Benefits of Helping Employees Prepare for Retirement
You must understand the benefits of helping your employees prepare for their retirement. Helping them through this period is your way of showing you're grateful for the years of service they've given your business.
Let's take a look at some other benefits retirement planning can bring.
Generates Positivity Amongst Employees
By planning retirement with your workforce, it shows you care about their futures and wellbeing. As well as how they're going to be spending their retirement years. Caring for your employees will send positivity throughout the business and improve the reputation of your company.
Creates a More Efficient Process
Helping your employees with their retirement planning on a consistent basis makes for a more efficient process moving forwards. This increases your employees' confidence in you when it comes to informing you of their decision to retire.
It'll also put other staff who are planning to take early retirement at ease.
Destresses Employees and Supports Well-Being
Employees may feel stressed about the thought of retiring and preparing to move on from their life at work. The following are reasons people may worry about finishing work:
- Fear of the unknown after years of working.
- Money worries such as retirement income, potential expenses and spending, the cost of living and organizing their assets.
- They may be retiring not on their own terms, such as to become a caregiver for a family member.
By listening to your employees with any worries they have about finishing work, you can point them in the right direction for any support they may need, such as a financial advisor.
An advisor can advise your employees on their time horizon, risk tolerance levels and the compound growth of their past investments to secure their financial future.
They can also provide them with tips on how to save money prior to finishing work, and prepare for any unexpected life expenses.
How to Help Your Employees Prepare for Retirement
How you help your employees prepare for finishing work doesn't need to be a complicated affair.
But remember, when it comes to planning for retirement - any help your company can give employees before starting the next chapter of their life, the better.
Engage Your Employees to Develop Your Retirement Plan
Communicate with your employees to create a transparent retirement plan. Get some feedback from your staff to discuss their stresses and feelings about their retirement.
Make them aware of how your company can help them with their futures. This'll improve the relationship between both employer and employee moving forwards. For example, the plan could include the retiree helping to train other staff in their job role before they leave.
Build an Employee Retirement Package
You can go a long way to help your employees by creating a retirement package that includes quality retirement benefits. A retirement package is your way of saying thank you for their years of service to your company.
This package should be made up of employee pension, with payments from both employer and employee as part of their salary. This goes towards securing their wealth and retirement income.
What's Included in Retirement Income?
Retirement income for Canadians is usually made up of financial gains and retirement savings made through working life. Such as:
- Employer Pension Plans.
- Personal savings.
- Investments, mutual funds and if they hold a retirement account.
- A Canada Pension Plan.
As well as savings, pensions are seen as one of the main ways in which retirees can maintain a secure income once they finish life at work.
Your staff may have a mutual fund which can make up part of their retirement income. This fund is made up of different assets, such as bonds and stocks.
What's a Pension?
A pension is a form of retirement income which is received via monthly pension payments.
Money is contributed into a pension fund with monthly contributions from someone's salary, with the amount based upon the following three factors:
- The amount of time employed by a company.
- The age of the employee.
- The salary the employee is earning.
One advantage of pensions is that the higher the employee salary, the more money they'll receive in the future post-retirement.
How Do Pensions Work in Canada?
The standard age to start receiving a pension in Canada is 65. However, people can start to receive their pension at age 60 or as late as age 70. It all depends on the person's life circumstances; the money may be required at an earlier time.
If the pension is received earlier, the monthly amount received will be smaller - and if received at 70, the monthly amount will be larger.
There are two types of pensions that people can receive in Canada:
- An employer pension plan: Both employer and employee make contributions in a percentage form from the salary paid by the company. This combined amount makes for an income post-retirement.
- Canada Pension Plan (CPP): This type of pension is when just the employee makes contributions to their pension account. The CPP is the most popular form of pension for people to receive when they retire.
What's the Canada Pension Plan (CPP)?
This pension plan is a benefit run by the Canadian Government. The aim is to replace part of an employee's pay when they finish working.
Not everyone qualifies for this type of pension account, but if qualified - this pension is received for the rest of their living life.
To receive these benefits, the following criteria must be met:
- The person must be at least 60 years of age.
- Have made one valid monthly contribution to their CPP.
It's crucial you make your employees aware they must pay tax on their CPP. The amount of tax required depends on the amount of money received through the plan. These taxes can be paid online.
How to Apply for CPP?
It’s crucial you make your employees aware that the CPP isn't an automatic given for Canadians. Before they retire, you need to encourage them to apply.
Applications can take up to two weeks if made online, via the Government website.
How Much is the CPP?
There's no set amount to what your employees may receive as part of their CPP fund. The government website states the maximum any one person can receive per month as a retirement benefit at age 65 is $1,253.79.
How much an employee can receive depends on their employment history during their life, as well as the amount of paying contributions made.
Your employees can use the Canadian Pension Plan calculator on the Government website to calculate how much they'll receive post-working life. As well as any taxes required.
The date people receive their CPP pension varies throughout the year, although they're usually at the end of the month.
Get Advice on Retirement with BrightHR
It's important you help your employees when you can as they choose to start a new life post working. This is often a stressful time, but by helping them with their savings and retirement planning, you can be saving them unwanted feelings of stress and sadness.
If you need advice on retirements, BrightHR has a handy tool that will help if required.
Our BrightAdvice service allows you to receive expert employment law advice whenever required.