Finance Minister Jim Flaherty’s proposal to give workers who are relatively close to retirement, or already retired, the option of phased retirement has received positive feedback.
“Phased retirement will provide employers with another option to retain older workers,” says Garry Tramer, general manager with the Saskatchewan Healthcare Employees’ Pension Plan (SHEPP). “Rather than retiring in the traditional sense, some employees may wish to ease into retirement and continue to work less than full time. One of the ancillary benefits is that these employees may be able to retain their health and dental benefits for a longer period.”
The downside is minimal, according to Tramer, who says there may be minimal costs to plan sponsors. “Pension plan administrators will have to retool their administration systems to handle the complex calculations for phased retirement. The cost of this system development could be considerable. Phased retirement will also increase the administrative effort in having to explain additional options available to plan members. We anticipated phased retirement was coming in the next five years but did not expect the legislation to be changed at this time,” says Tramer.
However, under this proposed legislation, phased retirement won’t come as quickly for all employers and employees. Kevin Tighe, Toronto retirement practice leader with Watson Wyatt, expressed concern with the government’s definition of employee requirements. “They’re saying 55 and older, which I’m fine with. But they’re saying age 55 and older and eligible for an unreduced pension.”
The large public sector plans and large unionized plans would have those “eligible” employees, provided they’ve got the required amount of years of service, says Tighe. But this isn’t the case for all plans. “There are a lot of defined benefit plans out there where you would not be eligible for unreduced [pensions] until age 60 or 62. So for those plans…they could not take advantage at age 55. They’d have to wait until those employees are eligible for the unreduced pensions.”
Tighe says the government should have considered a subsidy. “They should have said eligible for a subsidized early retirement pension. Subsidized meaning it’s maybe reduced 3% a year from age 60 or whatever it is.”
But over this year, as the government considers and reconsiders its proposal, Tighe hopes the details will be ironed out. “Maybe with some discussions and consultations, [the government will] realize the requirement to be eligible for an unreduced pension is overly restrictive.”
To comment on this story email joel.kranc@bencan-cir.rogers.com.
Benefits Canada has a page with additional reaction and commentary to the budget. To read Budget 2007: Special Report, click here.