There is a need
Despite the limitations of phased retirement defined by the ITA, phased retirement programs have the potential to address a number of talent-related challenges within their organizations. These include:
• retaining scarce or company-specific skills and knowledge;
• transferring knowledge to other employees (e.g., training or coaching);
• completing special projects;
• dealing with uneven or unexpected business demand; and
• opening up career opportunities.
The potential to use phased retirement as a workforce planning and management tool clearly exists not only because employers need them, but also because there are many employees who find phased retirement compelling for a variety of reasons.
• Pension and retirement savings are insufficient to maintain the employee’s lifestyle.
• The employee is ready for a change but not ready to stop working.
• The employee desires greater flexibility.
• The employee’s spouse or partner may not be planning to retire for some time.
• The employee is healthy and doesn’t find typical retirement pastimes exciting.
Regardless of the reason, an increasing number of Canadians are looking to manage their transition into retirement differently than they have in the past. Employers, therefore, have an opportunity to use phased retirement as part of their workforce management plans.
Employers’ moves
Employers have used a variety of formal and informal workforce planning and management tools to phase in retirement. These programs have taken many forms: the re-employment of pensioners on a contractual basis (with or without compensation for pension coverage), the crediting of full pensionable service under a DB pension plan and employees working reduced hours for a few years prior to retiring. Creating a flexible range of options designed to address both the needs of the employer and prospective retirees is the key to success.
These programs have the advantage of being very flexible and adaptable to the employers’ varying needs. They do not require major changes to pension policies, nor extensive communication. Also, their costs are manageable and are balanced by the retention of key talent without creating extra future liabilities for employers.
Workforce dynamics
A deep understanding of the organization’s workforce and its dynamics will ensure that there is a fit between the phased retirement plan and the business need. Organizations, particularly those with DB pension arrangements, typically have a clear, high-level view of the timing of expected retirements. We often hear statements such as, “Eighteen percent of our workforce will be eligible for an unreduced pension in the next four years.” We need to know more about this 18%.
• Who are they?
• Where are they (in the company and geographically)?
• What skills and knowledge do they have (and who else inside or outside the organization has the same skills and knowledge)?
• How will the demand for these skills and knowledge change over time, and how will the demand be satisfied?
• What type of pre- and post-retirement work arrangements are compelling enough to retain and engage the phased retiree?
Remember, a well-designed phased retirement plan could attract skilled people retiring from the competition.
Understanding workforce dynamics does not need to be an exhaustive and complex undertaking. Using relatively common employee data and engaging front-line management, it’s possible to create a clear picture of where talent gaps may be imminent and where they could be potentially addressed by phased retirement. Understanding the employee perspective is typically a matter of asking potential phased retirees—through focus groups or questionnaires, for example—what they would find compelling.
What the future holds
Unless there is a rapid and sustained economic recovery, justifying a substantial and durable increase in the workforce, the new measures provided in the ITA are unlikely to be applied any time soon. Most employers, with the possible exception of public sector employers with large well-funded pension plans, will continue to develop and implement their own phased retirement programs that do not involve substantial changes to their pension plans to retain their aging workforces. BC
Richard Vanasse is a principal, retirement, risk and finance, with Mercer in Ottawa. Iain Morris is a partner, human capital, with Mercer in Toronto.
richard.vanasse@mercer.com;
iain.morris@mercer.com
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© Copyright 2010 Rogers Publishing Ltd. This article first appeared in the June 2010 edition of BENEFITS CANADA magazine.