Workers can no longer rely solely on government for a financially secure retirement. The public pension plans sponsored by Quebec (QPP) and Canada (CPP) are facing major challenges, and their retirement benefits represent no more than 33% of pre-retirement income.
To encourage savings by employees, employers can set up group pension plans, which have several advantages for members:
- Lower management fees: Management fees are normally deducted directly from the returns achieved by managers. Investors may believe there are no fees, but that’s not true. Management fees are generally much lower in group plans than with funds offered by banks to individual investors. Saving a mere 0.5% on management fees can mean several thousand dollars more at retirement.
- Increased savings through payroll deductions: The contributions paid into a group pension plan are directly withheld from the employee’s pay, thus making it much easier to save. It is proven that individuals will put more money aside when they don’t have to transfer manually an amount from their account to a retirement savings plan.
- Immediate tax saving: The contributions withheld directly from employees’ pay are made in pre-tax dollars. Therefore, employees don’t have to wait until their income tax return is filed at the beginning of the following year to recover a tax overpayment. Saving taxes with each contribution paid into the plan will contribute to higher returns over time.
- Tax-sheltered accumulation of invested amounts: With a pension plan, employees can accumulate funds while deferring income tax on their investment returns. Normally, the income tax will be paid several years after the contributions, when the employee withdraws the money upon retirement.
- Access to leading investment managers: The funds offered through group plans are run by managers whose expertise is recognized in the industry and who are continuously reviewed and monitored by the insurers.
- Investment solutions for everyone: Whether you are an expert or a novice in financial matters, group plans offer various approaches for meeting your retirement objectives. Several tools and services are also available to guide you in the selection of investments.
- Employer match: When an employer decides to make contributions to the group pension plan, the plan becomes even more profitable for employees as the accumulated funds will grow faster. No individual plan allows for matching contributions!
A group pension plan may also have several advantages for the employer:
- Maintain productivity: A pension plan is a promise of better financial health for employees during retirement.
- Foster retention and attraction of employees: A pension plan is a significant part of the employees’ total compensation. It results in greater employee commitment and satisfaction.
- Maximize tax-effectiveness of compensation: An employer who grants a wage increase to employees must always consider the payroll taxes (EI premiums, QPP, QPAP, Workers’ Compensation, etc.) that will be payable on that increase. In a tax-optimized pension plan, the employer will not be subject to payroll taxes on contributions made to employees.
- Simple administration: AGA offers simple contribution payments, clear and detailed reports, along with support and answers to your questions.
Make your business more competitive with a pension plan!