Wage Increase or Retirement Savings?

Dec 15, 2014

SAVE A LITTLE TODAY FOR A LOT TOMORROW

According to the Conference Board of Canada, the average increase in salaries anticipated by employers for 2015 is 2.9%[1]. This is the time of year organizations typically do some planning around wages and benefits and you know your employees are as well.

For a more impactful plan, one which more actively engages your people in their financial health, some organizations are considering using some of the planned wage increase as an additional contribution to a retirement savings plan. For example, if you’re planning on providing a 2.9% increase in pay this year, consider contributing part of the raise in pay to the company retirement program and have your employees contribute a matching contribution.

Even a nominal 1% contribution, matched by your employees, can have a significant impact on your employees’ retirement plan. And, as we’ve seen from many studies on employee engagement and behaviour, you can have a positive impact on employee retention too – and that’s the real long term benefit for the organization. In fact, 97.0% of employees at small to medium-sized companies ranked workplace savings and retirement plans as an important factor in a decision to remain with their employer. Of those employees, 41.0% would consider moving to an employer that had some form of retirement or savings plan[2].

In the following illustration, we have taken an employee earning an the Canadian Average Industrial wage of $48, 250[3] and an annual retirement savings deposit equal to 1.0% employer and a 1.0% employee matching contribution to a registered retirement savings plan for 5 to 25 years with a range of four rates of return over the period. The result would be dramatic for an employee who stays with the plan, and this doesn’t take into account the tax savings on that 2% of pay.

ACCUMULATION OF EMPLOYER / EMPLOYEE CONTRIBUTION AT 1%/1%

4%

6%

8%

10%

5 years

$5,436

$5,766

$6,114

$6,481

10 years

$12,049

$13,483

$15,098

$16,918

15 years

$20,096

$23,809

$28,298

$33,726

25 years

$41,796

$56,121

$76,191

$104,395

If you think this strategy might fit your organization and your approach to wages and benefits at this time of the year, we can help ensure it is set up properly and properly communicated to your employees as well.

_______________________________________________________

[1] Conference Board of Canada – Compensation Planning Outlook Survey

[2] Standard Life/Environics Research Group

[3] 2014 Statistics Canada

blog rss subscribe button

GET TO KNOW CRAIG

Jump to:

Place content block here for staff contact info
Place content block here for social media links

PREVIOUS BLOG

Trend – A Second Definition

By Craig Hewson on September 22, 2014

sectionHeaderImg-Blue 

CRAIG'S LATEST BLOG POSTS

Place content block here. Add accent and heading in editor.

How Your Benefits Plan Can Run Like a Ferrari

By Craig Hewson on January 3, 2017

Benefit Plans – The Best Time for a Review

By Craig Hewson on October 13, 2015

Wage Increase or Retirement Savings?

By Craig Hewson on December 16, 2014

Trend – A Second Definition

By Craig Hewson on September 22, 2014

The Importance of Communication

By Craig Hewson on March 24, 2014

Critical Illness Insurance

By Craig Hewson on January 13, 2014

Discovery

By Craig Hewson on July 2, 2013

Group Benefit Utilization

By Craig Hewson on September 24, 2012

How To Spot Value In A Benefits Plan

By Craig Hewson on July 3, 2012

What is a benefit really?

By Craig Hewson on March 19, 2012

Depression in the Workplace

By Craig Hewson on February 20, 2012

GET IN TOUCH WITH CRAIG

Learn how Craig can help with your group benefits.

Phone 604.714.4443, email chewson@trggroup.com or send a message.

Message for Craig