As gig workers make up a greater share of the Canadian workforce, a lack of retirement savings options may leave this growing demographic facing financial insecurity in their senior years.
According to data from Statistics Canada, 871,000 Canadians performed gig work as their primary job in the fourth quarter of 2022. Among those gig workers, 624,000 were self-employed and 247,000 were considered employees.
Statistics Canada defines gig work as paid work consisting of short-term tasks or jobs with no guarantee of steady work. Gig workers are picking up jobs via digital platforms or apps, while others use traditional, offline efforts assisting clients or businesses.
Read: Online gig work growing rapidly, but workers lack benefits, retirement plans: report
“Gig workers face significant challenges in planning for retirement due to the unique characteristics of their employment,” says Paul Glavin, associate professor of sociology at McMaster University. “Unlike traditional employees, they lack access to employer-sponsored retirement plans, forcing them to initiate and manage their own retirement savings strategies. “The inherently unpredictable nature of gig work compounds this challenge — irregular income streams make it difficult to commit to consistent retirement contributions or engage in meaningful long-term financial planning.”
Individuals relying on gig work as their main source of income may have to postpone retirement and keep working longer than desired, he adds, noting the financial uncertainty can lead to significant stress and anxiety, which impacts both mental and physical health. Indeed, Glavin’s own survey evidence reveals higher distress, hardship and work-family conflict among dependent platform workers.
Worker, employer challenges
With gig and contract workers becoming increasingly prevalent in most economies, employers are understanding the need to better engage them, says Bernadette Chik, leader of the DC advisory business at Mercer Canada.
However, challenges exist for both workers and employers. Gig workers are typically employed for a limited amount of time and many don’t ask for retirement savings benefits. This may be due to people undervaluing the benefit, she notes, which is also a tendency among permanent employees.
It isn’t unusual for employers to open their capital accumulation plans up to gig and contract workers, says Chik, noting this may depend on the sector or type of work they’re in. For instance, a technology company trying to attract a programmer on a contract may feel more incentive to do so.
In addition, employers may be favouring more flexible savings options focused on other goals, such as paying down student debt, she adds, which provides a win-win that meets the diverse needs of today’s workforce, including gig workers.
The Canadian Freelance Union, a community chapter of Unifor that’s focused on advancing the rights and working conditions for freelancers in the communications and media industries, is seeing a demand from members for retirement support options and has been looking for a pension in which its members can contribute.
“The [lack] of pension funds for such a huge part of the workforce is frankly a catastrophe and it’s a real difficult thing to solve because there aren’t enough [government] benefits,” says Nora Loreto, the union’s president.
Taking a view from a larger employer, Crystal Arnold, senior manager of benefits, retirement and wellness at LifeLabs Inc., says one of the challenges in offering retirement savings support to contract workers is low participation. “A lot of them have more than one job, so even when we see people in part-time or casual roles, which are also permanent roles, they don’t participate because they have more than one employer.”
In addition, gig workers may not have enough income to put aside money for retirement, she adds.
Read: 31% of Canadian employees rely on gig work to help cover expenses: survey
Another challenge is employer reluctance. For example, smaller companies may be hesitant to become pension plan sponsors because of the costs and responsibilities associated with administering a plan. And for those employers that primarily work with gig or non-traditional type of workers, they may not have the set up to administer support, such as deducting funds from payroll.
Alternative solutions
Since gig workers’ employment, by definition, is temporary, Janice Holman, principal and financial wellness practice leader at Eckler Ltd., doesn’t think the responsibility to provide retirement support should necessarily fall on the employer.
However, the problem with leaving retirement savings in the hands of workers themselves is that individuals are often stuck paying higher retail fees on their investments, she adds. In a group plan, fees are typically substantially lower because of the economies of scale.
Group fees, on average, are around 0.5 per cent, says Holman, whereas retail investment products may have fees anywhere between 1.5 and 2.5 per cent. “There’s a massive discount when you participate in a group program and that adds up to a lot of money over time.”
Outside of employer-provided plans, there are other entities in Canada that could benefit gig and contract workers. For example, the Saskatchewan Pension Plan is a capital accumulation plan that was created by the Saskatchewan provincial government and is now available to plan members right across the country.
Read: Getting to know Shannan Corey and the Saskatchewan Pension Plan
“That’s a great example of a pension plan that was established for individuals where they can benefit from economies of scale, have professional oversight of the investments within the program and can set up regular ongoing contributions,” says Holman.
Ashara Dana, manager of business development at the SPP, says the plan works as a supplementary pension plan for individuals with or without an employer pension. It currently has more than $800 million in assets and more than 33,000 members.
Historically, the SPP offered returns of eight per cent with management fees under one per cent, says Dana, noting contributions are voluntary and tax-deductible as long as they’re within an individual’s annual registered retirement savings plan limit. Participants can start drawing down from the SPP between the ages of 55 and 71, regardless of their employment status.
“The idea was to provide everyone access to the growth and the security and peace of mind that only a pension plan can offer,” says Dana.
Key takeaways
• With 871,000 Canadians now relying on gig work as their primary source of income, many lack employer-sponsored retirement options, putting them at risk for financial insecurity as they age.
• Alongside a shortage of pension plan options for gig workers, many in this group may also be prioritizing immediate income and struggling to save because they’re facing financial constraints.
• Experts suggest expanding access to group pensions, such as multi-employer plans, which could provide gig workers with lower fees and professional management of funds.
The SPP does outreach with employers to educate them on how pensions can be an effective tool in the recruitment process, she adds. Some employers will set up their own plan offerings with SPP, while others will refer employees to contribute to the SPP on their own.
“There’s certainly a lot more opportunity for plans like that to exist, especially as there’s more and more individual contractors or gig work,” says Holman.
Read: A look at MEPPs in a shifting pension landscape
Multi-employer pension plans are another vehicle that has been successful in the past, she adds, noting these types of plans were initially set up for unionized employees, like electricians, who might work for a few different employers throughout the year. Through the union contracts, a certain amount of money would go into the pension plan. “It doesn’t matter then which employer you’re working for. They’re all making contributions throughout the year into the [MEPP].”
While MEPPs are typically within trade unions and other unionized workforces, they could be expanded to non-unionized members, says Holman, either through an industry group or different groups that come together to form one.
Making choices
Sun Life Financial Inc. offers a savings plan called Choices, which is designed for employees who were part of a Sun Life pension plan through a former employer.
“Many of them have transitioned to be gig workers or self-employed and can continue to save and get advice,” says Eric Monteiro, the insurer’s senior vicepresident of group retirement savings.
While individuals who move to Choices miss out on employer matching, they receive access to lower management fees because they’re working within a group rate. “It’s about halfway between what you pay in retail and what you pay in a very large institutional plan,” he says, noting members can also access a curated set of high performing funds and can receive one-on-one guidance with financial services consultants or advisors.
Read: Digital engagement helping plan members save more for retirement: report
There should be more expectations set for gig workers on what they need to be saving, says Monteiro. “From a public policy perspective, it would be important to make sure they are saving and, right now, we have absolutely no safeguards for that.”
He suggests the government introduce initiatives to encourage retirement savings contributions from gig workers, such as better tax breaks.
Glavin also believes that providing tax incentives or credits for contributions to retirement accounts could encourage gig workers to save more. Similarly, he says access to affordable financial education and planning resources would help them make informed decisions about their retirement.
Further, policy reforms “could mandate that gig platforms facilitate access to retirement savings options, possibly including automatic enrolment features,” he says.
Leah Golob is a freelance writer.
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