Flexible savings plans can potentially provide lower-income workers with earlier retirement options despite rising living costs, according to Mercer
TORONTO, April 14, 2025—Lower-income employees’ retirement prospects may be hit hardest by a soaring cost of living and the impact of tariffs on the economy. However, flexible employer-sponsored savings vehicles could offset this impact, according to the 2025 Mercer Retirement Readiness Barometer (MRRB). Mercer, founded in Canada 80 years ago, is a leader in helping clients realize their investment objectives, shape the future of work and enhance health and retirement outcomes for their people.
Lower-income workers are less likely to save for retirement when they need to spend more on daily necessities, which can negatively impact their future financial prospects. This is especially true of younger workers, who may have more immediate priorities than retirement, such as paying off debt or saving to buy a home.
Mercer’s study1 reveals that delaying savings due to spending on immediate priorities could lead to postponing retirement until age 69, which could be a significant concern for employees and employers alike. However, flexible employer-sponsored savings plans can shift that timeline, helping employees to retire two years earlier at age 67.
“In tough times, it’s no surprise that people are likely to prioritize immediate needs over their future need to retire,” says Bernadette Chik, Mercer Canada’s Defined Contribution and Financial Wellness Leader. “Organizations that understand this and introduce flexible savings options will increase the perceived value of their savings plans among employees and may enhance their workforce’s readiness for retirement and overall financial well-being. Furthermore, when senior employees are in a strong financial position to retire, it creates opportunities for emerging talent and fosters leadership development.”
Mercer data1 shows that employee participation in employer-sponsored retirement savings plans increases with both age and earnings level. Participation by the youngest and lowest-income employees can be 50% or lower.
Mercer analyzed two scenarios for workers earning $50,000 with employer-matched retirement plans.
In the first scenario, the worker neglects to contribute to their plan early on in their career to direct money to other priorities, such as paying rent, meeting daily necessities or making a down payment on a house. Because they do not contribute, their employer cannot match their contribution, potentially leading to no long-term savings until their financial position improves.
In the second scenario, the worker takes advantage of a flexible employer-sponsored retirement plan, where both the employer and employee contribute 5% plan, the employee can withdraw the money they contributed for immediate needs and savings goals. The employee is ultimately able to save 5% per year through ongoing employer matching until they are in a better financial position, at which point the employee can begin contributing the 5% to the savings plan without withdrawing, bringing their total savings level to 10%.
Mercer’s analysis highlights a striking contrast. In the first scenario, where the worker saves nothing before age 45, retirement readiness arrives at age 69. In the second scenario, with a flexible plan, readiness comes two years earlier, at age 67.
Adding flexibility to employer sponsored plans
Traditional Defined Contribution pension plans require savings to be “locked in” and only provide employees access to saved funds when they reach retirement age. This is intended to ensure that funds are used for retirement purposes. However, when employees face more immediate challenges, these requirements may become a disincentive to saving, which may ultimately hinder their retirement readiness.
An emerging trend is for employers to integrate savings vehicles, such as Tax-Free Savings Accounts and non-registered savings plans, to allow employee contributions to be directed to different vehicles based on individual needs. The employer contribution, however, is still directed to a retirement-only vehicle.
Under these designs, employees are allowed to direct their savings to meet immediate needs, such as debt repayment, while still building a retirement nest egg. The employees will benefit from greater financial wellness, and their employer will reap the reward of a more retirement-ready workforce.
Employers who offer flexible savings arrangements can better help their employees navigate financial challenges and enhance their financial wellness, ultimately positioning them to emerge from tough times in a significantly more favourable position.
1 Mercer Retirement Readiness Barometer
About the Mercer Retirement Readiness Barometer
The Mercer Retirement Readiness Barometer measures the age at which different personas can comfortably retire based on their participation within an employer-sponsored DC plan and benefits provided by the government (like CPP/QPP/OAS). The above analysis is based on Mercer’s retirement readiness analytics using proprietary databases and tools. Retirement readiness is defined as a 75% probability of not running out of money before death if an appropriate income level is maintained throughout retirement (including government benefits), which, for the 30-year-old, is 74% of pre-retirement income. Assumptions for scenario 1: 0% savings between age 30-45, 10% savings from age 45+. / Assumptions for scenario 2: 5% savings between age 30-45, 10% savings from age 45+.
The Mercer Retirement Readiness Barometer measures the age at which different personas can comfortably retire based on their participation within an employer-sponsored DC plan and benefits provided by the government (like CPP/QPP/OAS). The above analysis is based on Mercer’s retirement readiness analytics using proprietary databases and tools. Retirement readiness is defined as a 75% probability of not running out of money before death if an appropriate income level is maintained throughout retirement (including government benefits), which, for the 30-year-old, is 74% of pre-retirement income. Assumptions for scenario 1: 0% savings between age 30-45, 10% savings from age 45+. / Assumptions for scenario 2: 5% savings between age 30-45, 10% savings from age 45+.
About Mercer
Mercer, a business of Marsh McLennan (NYSE: MMC), is a global leader in helping clients realize their investment objectives, shape the future of work and enhance health and retirement outcomes for their people. Marsh McLennan is a global leader in risk, strategy and people, advising clients in 130 countries across four businesses: Marsh, Guy Carpenter, Mercer and Oliver Wyman. With annual revenue of over $24 billion and more than 90,000 colleagues, Marsh McLennan helps build the confidence to thrive through the power of perspective. For more information, visit mercer.com, or follow on LinkedIn.
Mercer, a business of Marsh McLennan (NYSE: MMC), is a global leader in helping clients realize their investment objectives, shape the future of work and enhance health and retirement outcomes for their people. Marsh McLennan is a global leader in risk, strategy and people, advising clients in 130 countries across four businesses: Marsh, Guy Carpenter, Mercer and Oliver Wyman. With annual revenue of over $24 billion and more than 90,000 colleagues, Marsh McLennan helps build the confidence to thrive through the power of perspective. For more information, visit mercer.com, or follow on LinkedIn.