Pension scheme designed to slow exodus of older workers
Even though income tax law made it difficult, the government of New Brunswick and the province’s nurses’ union have come up with a unique phased retirement program that, they hope, will keep much needed experienced nurses in the workforce longer.
“The objective of the program is the retention of our most experienced nursing resources that might otherwise choose retirement,” said Isaobel MacKinnon, director of strategic services in employee benefits division with the government’s Office of Human Resources.
The challenge was coming up with a plan that would be financially attractive to nurses and their employers, while still complying with Canada Customs and Revenue Agency (CCRA) requirements, she said.
With baby boomers approaching retirement, many sectors are expecting massive labour shortages. Phased retirement programs have been increasingly cited as a potential remedy to keep older people in the workforce longer, even if only on a part-time basis.
However, the Income Tax Act makes phased retirement difficult. That’s because it prohibits employees from contributing to and receiving benefits from an employer-sponsored defined benefit pension plan at the same time. Many older workers willing to work a reduced week can’t afford to do so, because it would hurt their pension and they can’t get by on a part-time salary not supplemented by pension benefits.
Under the Income Tax Act, employees can withdraw a lump-sum benefit from their pension once a year, but such a withdrawal reduces the value of the pension at retirement. In other cases, workers may reduce hours while still contributing to the plan on the basis of a full-time salary. Only Quebec and Alberta allow employees to take partial retirement and contribute to an employer-sponsored pension plan while receiving annual lump sum payments from the plan.
But beginning in March, New Brunswick nurses who are 56 or older will have the option of working part time while still taking home 85 per cent of their full-time income. They can draw on their pensions without reducing the overall value of the pension benefits, explained MacKinnon.
Nurses opting for phased retirement will have the choice of working two and one-half or three days a week. While working two and one-half days a week, they will receive 50 per cent of their former income in salary and another 35 per cent in pension pre-payment. When working three days a week, 60 per cent of income will be salary another 25 per cent will come from the pension plan.
The pension benefits are distributed through the lump-sum provisions which are permitted by CCRA. The employer accepts the annual lump sum, holds it in trust and then gives it out once a month in equal installments.
The New Brunswick Nurses’ Union and the provincial government first proposed the plan to Canada Customs and Revenue Agency in 2001 but it took two years of negotiations between the nurses and government with consultation with CCRA to come up with a plan. CCRA would not comment on why the New Brunswick proposal was accepted. A spokesperson said only that to be approved the plan must conform to legislation.
In addition to receiving pension benefits while not adversely affecting the final value of their pension, nurses will continue to earn pensionable service credits as though they were employed full time. The program does call for a pension contribution rate increase of 0.1 per cent from both the employers and all employees covered by the collective agreement, MacKinnon said.
Because CCRA prohibits people in a phased program from increasing the total value of their pensions, when a nurse retires fully the pension is reduced to reflect the total pension pre-payments received.
In a profession facing severe labour shortages, any step to keep nurses working longer is good news, said Linda Silas, president of the Canadian Federation of Nurses Unions. Every worker wants to get the best pension possible for retirement, said Silas, but the problem with many phased retirement programs is that employees end up eroding the value of their pensions. The program in New Brunswick is unique because it allows employees to partially retire while not reducing the value of their pensions, she said.
“I think it is a very innovative position taken in New Brunswick to retain nurses in the workforce,” she said.
“This would be very popular for nurses across the country,” she added.
Dan Anderson, director of the Ontario Nurses Association, said the union is preparing for the next round of collective bargaining and phased retirement could well end up on the table. “Is it a good idea? Yes. Will it keep nurses working? Yes,” he said. Employers will likely support the idea, but the difficulty will be getting regulatory approval which will not be easy, he said. “I was skeptical personally that New Brunswick would actually be able to get it, but they have.”
Though the program could potentially encourage some nurses to prematurely reduce their hours of work, thereby hurting and not helping the cause, Silas said there is little doubt the program will keep experienced nurses in the hospitals longer.
“We are talking about nurses who are leaving anyway,” she said. “If we can’t find way to attract them for two or three days a week, we lose them.”
Jacques Lafrance, a pension expert with consulting firm Towers Perrin, said provisions stopping people from collecting benefits while still contributing to a pension are intended to stop people from abusing the system.
Without those provisions there is nothing to stop someone from retiring one day so they can begin collecting benefits, and then begin work again to continue to build up future benefits. However, he admitted, there is nothing to stop people from retiring from one organization, start collecting benefits and then begin working at another organization to accrue future benefits there.
“The objective of the program is the retention of our most experienced nursing resources that might otherwise choose retirement,” said Isaobel MacKinnon, director of strategic services in employee benefits division with the government’s Office of Human Resources.
The challenge was coming up with a plan that would be financially attractive to nurses and their employers, while still complying with Canada Customs and Revenue Agency (CCRA) requirements, she said.
With baby boomers approaching retirement, many sectors are expecting massive labour shortages. Phased retirement programs have been increasingly cited as a potential remedy to keep older people in the workforce longer, even if only on a part-time basis.
However, the Income Tax Act makes phased retirement difficult. That’s because it prohibits employees from contributing to and receiving benefits from an employer-sponsored defined benefit pension plan at the same time. Many older workers willing to work a reduced week can’t afford to do so, because it would hurt their pension and they can’t get by on a part-time salary not supplemented by pension benefits.
Under the Income Tax Act, employees can withdraw a lump-sum benefit from their pension once a year, but such a withdrawal reduces the value of the pension at retirement. In other cases, workers may reduce hours while still contributing to the plan on the basis of a full-time salary. Only Quebec and Alberta allow employees to take partial retirement and contribute to an employer-sponsored pension plan while receiving annual lump sum payments from the plan.
But beginning in March, New Brunswick nurses who are 56 or older will have the option of working part time while still taking home 85 per cent of their full-time income. They can draw on their pensions without reducing the overall value of the pension benefits, explained MacKinnon.
Nurses opting for phased retirement will have the choice of working two and one-half or three days a week. While working two and one-half days a week, they will receive 50 per cent of their former income in salary and another 35 per cent in pension pre-payment. When working three days a week, 60 per cent of income will be salary another 25 per cent will come from the pension plan.
The pension benefits are distributed through the lump-sum provisions which are permitted by CCRA. The employer accepts the annual lump sum, holds it in trust and then gives it out once a month in equal installments.
The New Brunswick Nurses’ Union and the provincial government first proposed the plan to Canada Customs and Revenue Agency in 2001 but it took two years of negotiations between the nurses and government with consultation with CCRA to come up with a plan. CCRA would not comment on why the New Brunswick proposal was accepted. A spokesperson said only that to be approved the plan must conform to legislation.
In addition to receiving pension benefits while not adversely affecting the final value of their pension, nurses will continue to earn pensionable service credits as though they were employed full time. The program does call for a pension contribution rate increase of 0.1 per cent from both the employers and all employees covered by the collective agreement, MacKinnon said.
Because CCRA prohibits people in a phased program from increasing the total value of their pensions, when a nurse retires fully the pension is reduced to reflect the total pension pre-payments received.
In a profession facing severe labour shortages, any step to keep nurses working longer is good news, said Linda Silas, president of the Canadian Federation of Nurses Unions. Every worker wants to get the best pension possible for retirement, said Silas, but the problem with many phased retirement programs is that employees end up eroding the value of their pensions. The program in New Brunswick is unique because it allows employees to partially retire while not reducing the value of their pensions, she said.
“I think it is a very innovative position taken in New Brunswick to retain nurses in the workforce,” she said.
“This would be very popular for nurses across the country,” she added.
Dan Anderson, director of the Ontario Nurses Association, said the union is preparing for the next round of collective bargaining and phased retirement could well end up on the table. “Is it a good idea? Yes. Will it keep nurses working? Yes,” he said. Employers will likely support the idea, but the difficulty will be getting regulatory approval which will not be easy, he said. “I was skeptical personally that New Brunswick would actually be able to get it, but they have.”
Though the program could potentially encourage some nurses to prematurely reduce their hours of work, thereby hurting and not helping the cause, Silas said there is little doubt the program will keep experienced nurses in the hospitals longer.
“We are talking about nurses who are leaving anyway,” she said. “If we can’t find way to attract them for two or three days a week, we lose them.”
Jacques Lafrance, a pension expert with consulting firm Towers Perrin, said provisions stopping people from collecting benefits while still contributing to a pension are intended to stop people from abusing the system.
Without those provisions there is nothing to stop someone from retiring one day so they can begin collecting benefits, and then begin work again to continue to build up future benefits. However, he admitted, there is nothing to stop people from retiring from one organization, start collecting benefits and then begin working at another organization to accrue future benefits there.
