If there’s one thing Canada’s pension industry can agree on, it’s the work that needs to be done around defined contribution pension plans.
In February, on the second morning of Benefits Canada’s DC Plan Summit in Banff, Alta., a roomful of plan sponsors, record-keepers, investment managers and consultants compiled a wish list for DC plans.
One recurring theme in the room was automatic features, including auto-enrolment and mandatory contributions. Along the same lines was the suggestion to shorten or eliminate any probationary period required before new employees can join a workplace plan. These all seem obvious to me — if we want people to save for retirement, and start as soon as possible, employers and plan sponsors have to, at the very least, meet them halfway.
I started writing about pensions in 2010 while living in the U.K. At that time, the country was re-examining its occupational pension legislation and within two years, in October 2012, rolled out its auto-enrolment reforms. The phased-in system began by mandating that the country’s largest employers automatically enroll employees into their workplace pension schemes.
By 2016, when I wrote about the U.K. reforms for Benefits Canada, about five million Brits from 70,000 large employers were enrolled in workplace DC plans, but the industry was still taking a wait-and-see approach, with about seven million people from 1.8 million small employers next in line.
For my part, I’m extremely supportive of this type of legislation. I believe one of the most fundamental barriers to retirement savings is inertia, so I welcome anything the government and employers can do to ensure people automatically join a workplace plan with mandatory contribution levels, and do so as soon as possible.
This leads into another consideration raised by the DC Plan Summit delegates. Since different generations have different financial priorities, many 20-somethings who are starting a first job will be stretched to contribute to a workplace savings plan. They may still have student loans to pay off and a mortgage to save for, so putting away money for a retirement date decades in the future is admittedly tricky.
Delegates said they want more employer-provided options for other savings, such as debt repayment, and suggested these also include an employer match. A few record-keepers and plan sponsors are already making this a reality, which is great news. But I still feel that instilling a responsibility for saving for retirement as early as possible is integral to developing good financial habits across every age group.
Of course, movement in the DC pension space isn’t going to be too speedy until the various provincial and jurisdictional pension regulators sort out legislation around decumulation, another hot topic among DC Plan Summit attendees.
Employers and plan sponsors have always talked a big game about the accumulation side of the equation, but as DC savers begin to reach retirement age, the industry has to ensure there are mechanisms available to help plan members draw down their money in the most efficient and effective way.
And when more of these possibilities become reality, it will be important to simplify the language and sheer volume of pension statements and communications. Just like the world of online shopping or on-demand television, the pension industry needs to be more customized and personalized in the way it talks to consumers.
As detailed in this month’s pension feature, employers have mines of employee data at their fingertips. While our feature digs specifically into the use of data and analytics in determining longevity risk, why not make the most of that data to really focus pension communications?
The DC Plan Summit attendees had a few other suggestions, such as including more alternative investment options like real estate in DC plans; the opportunity to add spouses into the plan, in the same way employees can add dependants to their health benefits programs; and cost-sharing for investment management fees.
In addition to this icebreaker dialogue, the event raised a lot of good suggestions and discussions about the future of Canada’s DC industry. If we keep it up, and look to other countries slightly farther ahead on their DC journeys, I think the industry is poised to transform our DC future.