This is Part 2 of our 8th annual survey of CAP members. Read Part 1, Part 3 and Part 4.

What can CAP sponsors and providers do to keep members on track to retire as planned?

Based on the results of this year’s CAP Member Survey, a significant disconnect remains between what plan members expect in retirement and what they are likely to get. “It’s worrisome because retirement readiness is not there,” says Anna Pagliuca, associate vice-president, group savings & retirement, with Standard Life. “As service providers and plan sponsors, we really need to provide plan members with greater support and guidance to propel them into what action they need to take to be ready for retirement. They have to start early, set goals and make sure they stay on track.”

While it’s good news that a higher proportion of members say they feel financially prepared for retirement (46%, versus 40% in 2012), the majority (54%) admit to not feeling prepared. Yet participants are expecting to retire at an average age of 63.2 with 53.8% of their current annual income, having saved only $697,236, on average, by retirement.

Even more troubling is that these savings seem to depend on unrealistic expectations of return on investment. Plan members claim they’re currently getting a 10.8% return (excluding company match), on average, and are anticipating a whopping 14.3% return year over year.

This year, 72% of plan participants expressed confidence (of which 15% were “very confident”) that their employer-sponsored retirement plan will provide the amount of money they expect in order to meet their financial objectives in retirement—a significant jump from 60% the previous year. And they believe their DC plan or group RRSP will provide 31.4% of their total retirement income.

More than half (56%) of plan participants think they’re on track to meet their retirement targets. But, as in previous years, a dismally low number of plan members (21%) in 2013 say they have a formal, written financial plan that outlines at what age they will retire and the amount they will need to retire by that age.

“When people say they have no formal plan but think they will be all right in retirement, it makes no sense,” says Marc Poupart, vice-president, pension & retirement programs, with Hudson’s Bay Company. “And if their expected earnings on investments are unrealistic, they won’t have enough money to retire. This creates concern. I wonder how we can help them develop a realistic retirement plan and also support them in getting a better deal from the insurance industry during the de-accumulation phase.”

Ken Millard, vice-president, national accounts, group retirement services, with Great-West Life, would also like the industry to do more to encourage individuals to create a financial plan.

“They need to commit to a contribution rate, commit to a horizon of when they will retire and map out the needed accumulation. Then, every year, they should review their progress to figure out what the shortfall may be and either top it up or amortize that amount for the remaining lifetime. Providers can help members calculate their retirement income needs through access to our tools, websites and various education models.”

And low contribution rates and insufficient retirement income will not only affect plan members, cautions Vartkes Rubenyan, a principal with Mercer. “They will also have financial and workforce management implications for plan sponsors. Any cost/benefit analysis pertaining to an assessment of the level of contribution rates offered by companies should consider both the implications of having sufficient retirement income and low workforce morale and productivity. Employees who report to work just because they have not saved enough and are unable to retire will probably be less productive and have an adverse impact on workforce morale.”

Get a PDF of the entire report.

Copyright © 2019 Transcontinental Media G.P. This article first appeared in Benefits Canada.

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