Ontario ends mandatory retirement

As every advisor knows, retirement planning is highly dependent on the client — some dream of shaking off the shackles of work as early as possible, while others enjoy the sense of purpose their job gives them and plan to stay on as long as they are competent. There is one common thread, however: nobody wants to be told when to retire.

As of December 12, workers in Ontario have more control over that decision, with the implementation of Bill 211, The Ending Mandatory Retirement Statute Law Amendment Act, 2005.

“Ontarians deserve the right to choose when they want to retire,” said Steve Peters, minister of labour. “Workers can now decide when to retire based on lifestyle, circumstances and priorities. This is simply the right thing to do.”

With some exceptions, the bill forbids age-based mandatory retirement, a change that will affect advisors working with individual financial planning clients and with companies on group benefits and pension plans.

Advisors working with individual clients have to face a mixed blessing, suggests Roy Vokes, president of Vaughan-based Agora Financial Services.

An employee remaining employed can continue Canada Pension Plan contributions up to age 70, thereby raising eventual payouts and possibly reducing tax bills during income-earning years. Employees working past age 65 have other options including continued contributions to their Registered Retirement Savings Plans, since salary continues to qualify as earned income. An employee who works past the age of 69 also has the option of income-splitting by making spousal RRSP contributions, provided the spouse has not yet reached age 69, he explains.

Vokes suggests that before any decisions are made, advisor and client examine factors such as the client’s benefits coverage through the employer’s plan.

Clients working past age 65 may find it easier to delay setting up their Registered Retirement Income Funds and/or reduce income for tax purposes by converting their RRIFs back to RRSPs, he says. “The main thing will be maintaining flexibility. That will be my key.”

One danger is rooted more in human nature than in financial planning. Since the pressure to retire at age 65 stops being a determining factor, some clients will defer planning indefinitely, reinforcing the advisor’s responsibility to keep the client focused on retirement planning. “You would have to look at it [retirement at 65 years of age] in the same way as you have an optional earlier retirement now,” Vokes suggests.

Group benefits advisors can provide several options, explains Tony Conte, 25-year insurance veteran and president of Ottawa-based Conte Financial Services Inc. The extension of traditional life insurance benefits may not become a big issue since most company plans reduce death benefits at age 65 by 50% and terminate them at age 70, leaving little room for change.

Along with general group benefits such as dental expenses, short-term disability offers more room for change, since it does not terminate coverage at a specific age while long-term disability coverage usually terminates at age 65. “If you have someone in their 60s, the concern there is if they become disabled for whatever reason, the chances of them going full term are much greater because their ability to recover from any disability is generally (much reduced),” he explains.

Some employers may find it cost-efficient to use other options such as setting up separate plans for post-65 workers and self-insuring employees’ STD coverage.

The change in legislation may bring a less tangible advantage to group benefits advisors, Mr. Conte suggests. “Whenever there is controversy, whenever there is turmoil in our business, it means clients are going to depend more than ever on our services and advice.”

Advisors will not likely become swamped before and after December 12, as it may make less difference than suggested by its political proponents. The May edition of Statistics Canada’s report entitled Perspectives on Labour and Income — Retirement says that the median retirement age was consistently around 65 years in the late 1970s and early 1980s and has declined since that time period. This piece of legislation, at least, will not cut too deeply into advisors’ holiday time.

As with so many issues, Canada is a patchwork of differing interpretations on mandatory retirement.

Under the Canadian Human Rights Act, it is not considered discriminatory to terminate an individual’s employment because that individual has reached the normal age of retirement for employees working in similar positions.

Provincially, Ontario is joining Alberta, Manitoba, Prince Edward Island, the Yukon, the Northwest Territories and Nunavut, all of which consider mandatory retirement to be contrary to their individual human rights codes.

Quebec considers mandatory retirement to violate the Charter of Human Rights and Freedoms, and also offers protection under its provincial labour laws.

In British Columbia and Saskatchewan, older employees are protected up to the age of 65, after which they may not file a discrimination complaint. Nova Scotia’s law similarly ends protection at 65 but will investigate if the employer treated the complainant differently from others in the same age group.

In New Brunswick and Newfoundland and Labrador, termination is allowed if it complies with the terms or conditions of a bona fide retirement or pension plan. If there is no such plan, employees who are forced to retire can file a complaint for age discrimination.

Al Emid is a Toronto-based freelance financial services writer. service@advisor.rogers.com

(12/11/06)

Al Emid