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Aon Reports the Average Canadian Worker Needs Eleven Times Their Final Pay to Retire


TORONTO, August 27, 2020 – Aon plc (NYSE: AON), a leading global professional services firm providing a broad range of risk, retirement and health solutions, has found that the average Canadian worker will need to accumulate 10.9 times their final pay to maintain the same spendable income after retirement, according to its latest Real Deal report.

The Real Deal defines retirement income adequacy as having the same spendable income after retirement as before, taking into account changes in savings, taxes, medical expenses and other factors. It compares the anticipated accumulation of retirement savings (articulated as a multiple of final pay) to the target accumulation required to maintain an employee’s standard of living after retirement.

The Real Deal can be used by employers to answer day-to-day questions related to their retirement savings plans, such as how to improve members’ retirement readiness without increasing the cost. The U.S. version of this tool has been used for more than a decade to help Aon’s clients understand the impact of different plan designs and investment structures on average retirement income adequacy, based on their own plan data and workforce demographics.

“The retirement readiness gap is real for Canadian workers,” said William da Silva, senior partner and Canadian director of Retirement Solutions, Aon. “This is an opportunity for employers to ask the right questions: Are contribution levels appropriate, and designed in alignment with the plan sponsor’s objectives? Are employees equipped with resources to manage their finances and plan for their retirement? Do employees understand the impacts of medical cost inflation and other post-retirement expenses? Clearly, there’s a need to look both at the substance of workplace retirement programs and at the ‘soft’ levers of education and information.”

“Every employee has unique circumstances, and how much an individual should save ultimately depends on their own goals and resources,” said Rosalind Gilbert, senior actuary and associate partner, Retirement Solutions, Aon. “Canadian employees have clear expectations that their employer should provide increased support for their overall financial wellbeing, and Capital accumulation plan (CAP) sponsors are focusing on areas that are well aligned with this objective. The Real Deal arms employers with analytics to identify the overall retirement readiness of their workforce and identify strategies to address employee needs.”

Other key findings include:

  • Retirement income comes from various sources – workplace retirement savings plans, government pensions (C/QPP and Old Age Security (OAS)), as well as personal savings. On average, Canadian employees need to have 16 percent of their annual pay going into workplace and personal retirement savings every year from age 25.
  • In the absence of personal savings, the average Canadian employee1 will come up short against the 10.9 times pay goal. They would have to delay retirement to age 70 to be financially ready to retire and maintain the same net available income after retirement or lower their standard of living by approximately 30 percent to make up for the savings shortfall.
  • For younger workers, retirement savings needs are even higher than average, as they will likely need to provide for a longer decumulation period due to increasing life expectancy, as well as cover higher medical costs, which increase faster than salaries.

1 Age 45, annual earnings of $60,000, workplace retirement savings plan with 5% employee contributions and 100% employer match.

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