Canadians willing to trade pay for pensions

Volatile global markets, dwindling income streams and decimated nest eggs have Canadians thinking short-term pain for long-term gain when it comes to financing their retirement years.

One-third of Canadians say they would give up a portion of their salary in order to secure their retirement future, while one-quarter of Canadians say they would be willing to forgo bonuses for more retirement security, according to the 2011-2012 Towers Watson Retirement Attitudes Survey.

"As financial insecurity becomes more widespread, Canadian workers are increasingly interested in a secure rewards package with retirement benefits they can count on" Ian Markham, retirement innovation leader for Towers Watson, said in a release.

"While Canadians have traditionally looked to employer-sponsored retirement plans as one part of their financial future, the fact that so many workers are willing to trade pay increases or bonuses for enhanced retirement security points to the significant unease that many employees hold towards financial planning for their retirement years."

Roughly 40 percent of respondents say their employer-sponsored retirement plan will be their only source of retirement savings -- a troubling stat considering the health of defined-benefit pension plans in Canada.

Registered pension plans (RPP) -- retirement saving vehicles established by either employers or unions -- are generally categorized into two groups or a hybrid of both: Defined benefit and defined contribution. With a defined-benefit plan, employees contribute a portion of their salary to the plan and are guaranteed a monthly income payout once in retirement. With defined contribution, employees contribute in much the same way but the retirement benefit amount is not guaranteed.

Defined benefit plans have become increasingly rare in Canada as companies struggle to fund plan deficits. A recent review of more than 450 defined-benefit pension plans in the U.S. and Canada found a widening cavern between plan assets and plan obligations -- a record $389 billion shortfall in 2011, according to debt rating agency DBRS.

Employers sensitive to the strain pension deficits can place on a company's bottom line are transitioning more employees to defined contribution plans bereft of a guaranteed income stream. According to the latest data from Statistics Canada, more than 4.4 million employees participated in a defined-benefit pension plan in 2010, accounting for 74 per cent of participation in an RPP. A decade ago, 84 per cent of RPPs were made up of defined-benefit participants.

But guaranteed retirement plans are becoming increasing important to workers and can make or break retention levels for employers.

Between 62 per cent and 71 per cent of Canadian defined-benefit employees say their retirement plan is a compelling reason to stay with their current job, according to the Towers Watson survey. The numbers are much lower for those in a defined contribution plan -- 30 per cent to 50 per cent.

"Understanding worker preferences toward their reward programs creates an opportunity for employers to highlight the value of their retirement plans to current and prospective employees — a potential advantage for any business that places a priority on retaining talent and organizational experience," Markham said.