Getting employees to save enough for retirement remains an ongoing challenge for sponsors of capital accumulation plans (CAPs). While a number of factors can influence member behaviour, this year’s CAP Member Survey took a closer look at attitudes to savings and debt.
The vast majority (94%) of plan participants agree that “a penny saved is a penny earned,” yet members don’t necessarily follow the old adage. Although 74% of members acknowledge that they are foregoing “free money” if they don’t contribute to the maximum company match level, only 17% maximized their contributions in 2013.
This year, fewer plan members (49%, versus 61% in 2010) supported the idea of auto-escalation of contributions. Debt could be a factor limiting contribution levels––plan members’ reported average household debt (not counting mortgages) stood at $33,847 in 2013.
“Savers and spenders represent two ends of the spectrum,” says Anita Lieberman, regional vice-president, Ontario, group retirement saving, with Desjardins Financial Security. “The data in this year’s survey show a pretty clear continuum, with savers starting their bank accounts as teenagers, starting to save for retirement early, paying off credit card balances every month and saving for something rather than using credit cards.”
When asked how they would allocate a hypothetical $1,000 surprise bonus from their employer, members would put only $36 toward their employer-sponsored retirement plan, with the bulk going toward debt ($328) and other savings ($263). Yet the 28% of people who say they don’t pay off their credit card in full each month would allocate $530 toward debt. “It makes me wonder if there is a cash flow problem, that people can’t afford to contribute in order to get a match in the company plan,” says Lieberman. “Maybe there is an opportunity here for companies to make it easier for employees to put lump sum bonuses on a tax-deferred basis into their group RRSPs.”
Sarah Donahue, a relationship manager with MFS Investment Management Canada, wonders whether plan sponsors need to better articulate the difference between saving and investing. “In the survey, we uncover that participants are willing to allocate 27% of a hypothetical bonus to savings but only 3% to an employer-sponsored retirement plan. While it is encouraging that people are willing to save, savings are generally for short-term needs. If the long-term goal is a comfortable retirement, we need to communicate to plan members the importance of investing more in their CAP.”
This year’s survey also revealed a high level of satisfaction with employee retirement plans (88%, up 11 points from 2012), the performance of investments in these plans (84%, up 19 points) and the content of communications regarding the plans (82%, up eight points).
But what’s most surprising for June Smyth, senior consulting actuary with Baynes & White, is that close to two-thirds (61%) of plan participants believe that if they don’t make their own investment choices for their employee retirement plan, their employer should take responsibility to ensure that the contributions are invested appropriately. And a startling six in 10 say their employer has a responsibility to ensure that the investment choices they make in their plan are the best choices for them.
“Based on these numbers, how many people are still counting on their employers to hold their hand and get them through it?” asks Smyth. “A lot of plan members aren’t well educated on investment and savings choices, and they need help to save enough so they don’t outlive their retirement savings. Moving forward, I think mandatory plans may help people to save—and, whether they like it or not, they may come around and realize that the sooner you start, the better off you will be when you actually retire.”
Get a PDF of the entire report.