When it comes to retirement security, Canada is a land of extremes. If you are a Canadian who works in the public sector, you may be part of one of the best performing pension plans in the world. For those outside the public sector, the picture is very different. Since the late 1970s, workplace pension coverage has dropped from about 35 per cent to about 25 per cent, and defined benefit coverage is less than a third of what it was then. A recent study showed that modest earning Canadian families without pensions were approaching retirement with median savings of only $250. Although the public elements of Canada’s retirement system – Old Age Security and the recently enhanced Canada Pension Plan – provide a strong base for Canadians, the workplace based pillar of the system has significant room to improve.
Canada’s non-profit and charitable sector faces a large and growing retirement security gap. About 850,000 Canadian non-profit workers lack access to a workplace retirement plan. The fastest growing parts of the non-profit workforce – part-time and contract workers – are especially likely to lack coverage.
A new effort called Common Good aims to close this coverage gap. Common Good is a collaboration between foundations, non-profit sector leaders, anti-poverty advocates, and retirement security specialists, including pension expert Keith Ambachtsheer, who is serving as a technical advisor to the project, and our firm, Common Wealth, which is providing technical and operational support to the project. Its primary aim is to create a national, portable collective retirement plan for non-profit sector workers, especially for those who lack coverage. The plan’s proposed design draws inspiration from high quality, members first, collective retirement plans like Nest.
Between now and the fall of this year, we are working hard to build a critical mass of employers. If we get enough employers to sign up – we are aiming for 50 employers by late fall of this year – then we can build the plan. We are also conducting a survey of members and employers, as well as a series of interviews with employers, to gauge interest and test design features. Our goal is to get to 20,000 members within five years.
Common Good is a unique coverage expansion initiative. It is an initiative of the sector, not of government. There is no obvious anchor sponsor; the diversity of the sector requires a highly collaborative approach, working with many stakeholders. Unlike with Nest, U.S. state based plans like CalSavers, or the Australian superannuation system, there is no government mandate or automatic enrolment program. Common Good is a community effort that must be built from the ground up.
This sector led approach has its challenges, including the quasi-voluntary nature of the plan, access to start-up funding, and the lack of a single stakeholder who can lead the initiative. It also brings advantages. The need to engage a wide range of stakeholders from the beginning could be key to building trust in the plan, a factor that we believe is critical to building high performing, member focused retirement institutions.
The sector led approach also focuses everyone’s attention on the needs of the employers and workers in the sector. This has led to a proposed design with some unique features:
- The plan is open to freelance and contract workers as well as to traditional employees – taking into account the fast growing nature of non-standard work in the sector.
- The plan design pays special attention to the needs of lower and moderate income Canadians, including a savings option (the Tax-Free Savings Account) that does not result in the claw back of government benefits in retirement.
- The plan itself would be set up as a non-profit whose board would be appointed by leaders in the sector and would have a fiduciary duty to members.
- Members can stay in the plan over time and benefit from curated post-retirement options.
- The plan is being designed with all sizes of employers in mind, including small and mid-sized employers, among whose workers’ pension coverage is lowest, with flexible contribution rates, minimal administration, and no fiduciary responsibilities for employers.
Are sector led initiatives like Common Good an effective way to expand coverage? Certainly sector driven approaches have worked well in the Canadian public sector, with top performing plans like HOOPP (health care), OMERS (municipalities), and Ontario Teachers’ Pension Plan (K-12 education). But the non-profit sector’s labour force, economics, and structure are different from the public sector’s, requiring a tailored approach. We will know more in a few months. So far, interest from employers and other sector stakeholders has been high. The need for, and value of, a collective, portable plan seems to be intuitive to many. They see such a plan as valuable not just for long-term financial wellness and security, but for attraction and retention of talent within the sector.
The initiative has received national media coverage and has been discussed in the non-profit press. Senior policy makers, too, have taken a keen interest. The potential for impact, especially for modest earners and precarious workers, is enormous. But success will require employers and other sector stakeholders to make retirement security – often a back-burner issue within many overstretched non-profits – a priority. We look forward to sharing more lessons as the initiative progresses.
By Alex Mazer, Founding Partner at Common Wealth