Despite the predictions and dire warning of economists, KAA-Boomers are not departing the workforce in staggering numbers – even in the wake of Ottawa’s 2008 amendments to the Income Tax Act that allow defined plan members to accrue pension benefits while still working.
Why wouldn’t people want to shift from a five- to four-day work week in their 50s and perhaps a three-day work week in their 60s if they can collect a partial pension to make up for a reduced salary? And especially if they’re still able to build up pension credits during the days they’re working?
They’re several reasons.
One. The Federal Income Tax Act changes came into effect on January 1, 2008. Later that year, the stock market crashed and many boomers saw their retirement savings plummet. As a result, they’ve shelved, or abandoned, any plans for phased or full retirement.
In addition, the crash of 2008 forced many employers, especially those in the private sector, to reduce their workforces and introduce hiring and wage freezes. Those boomers who haven’t been laid off know full well their companies would welcome their departure once and for all in order to cut costs — so they’re taking no chances by volunteering for part-time retirement. Retaining knowledge has taken a back seat to saving money.
Which brings us to the second point. Only a small percentage of Canadians have DB pension plans and necessary changes to provincial pension legislations have not yet been made by all provinces. Further narrowing the field is the fact that most defined benefit pension plans have deficits and phased retirement options are complicated to implement and administer. So even if employees have a defined benefit pension plan, a phased retirement program may not be available. And employees can’t accrue DB pension benefits while drawing a pension without a formal phased retirement program.
Thirdly, those lucky enough to have access to a generous DB plan – mostly public sector workers – are not using the phased retirement program to retire. They’re using it as a money making venture – retiring, then finding another job or being rehired on a contract basis and thus drawing 60 percent of their pension on top of a full salary.
And finally, phased retirement options have always existed in the private sector, although not the attractive DB option enjoyed by public sector workers. Instead, the private sector uses a variety of formal and informal provisions, including allowing an employee to fully retire and then hiring him or her back on a contract or project basis.
But as the economy recovers, both the public and private sectors are likely to find more older workers seeking phased retirement programs. It’s an option that works for employee and employer alike. Employees may find such programs desirable because
- pension and retirement savings are not enough to support a desired lifestyle
- they enjoy working but want more flexibility
- their spouse is not ready to retire
And phased retirement is beneficial for organizations, allowing:
- the retention of specific and/or scarce skills and experience
- knowledge transfer/succession planning
- access to specialized skills for short-term projects
- career development for employees of all ages
The key word in this debate is flexibility. Flexible options meet the changing and varied needs of the business and of the employees. And flexible options do something even more important – they attract highly skilled people retiring from the competition!
How to do this? Understand your older workforce. Who are they? Where are they in the organization? Just how old are they? When do they want to retire? What hard to replace skills do they have? How will your company’s need for these skills change? How will you replace these skills?
And finally…
What phased retirement options will appeal to your employees? What will be compelling enough to persuade them to stay with your organization on a part-time, contractual or as-needed basis?
KAA-Boomers may not be leaving in the millions just yet. But they will. And a phased retirement program may be just what your organization needs to retain critical knowledge, experience, talent and skills.
