Many Canadian investors need additional guidance to maximize the benefits in their capital accumulation plans (CAPs), according to a survey.

The MFS Investment Management Canada Ltd. survey finds that 72% of plan members agree that they’re primarily responsible for determining how much they contribute to their plan, and 73% agree that they are primarily responsible for investing appropriately based on their needs and goals.

However, more than one-fifth (22%) of plan members say they have no idea how best to diversify a CAP account.

“We have put a tremendous amount of responsibility in the hands of plan members, many of whom have little expertise in investing or retirement planning,” says Bradley Hicks, managing director with MFS Investment Management Canada. “Canadian employers and plan sponsors can play a pivotal role in helping members understand and maximize the benefits in their retirement savings programs.”

The survey also reveals that 45% of plan members believe that there’s no added benefit to contributing more to a CAP than what is necessary to receive the employer’s matching contribution. Only 10% based their contribution decisions on how much they would need to reach their retirement goals.

“With the ultimate goal being retirement readiness, CAP members should focus on the factors within their control, which include taking full advantage of their employer’s matching contributions and considering the feasibility of contributing more than the minimum,” he explains. “It’s important for investors to think about the type of lifestyle they want when they retire and ensure that they are saving enough to meet that expectation.”

More than half (56%) of those surveyed said that not contributing regularly could have a major negative impact on their CAP balance at retirement. However, 22% reported that they had stopped contributing to their CAPs for reasons other than a job change. Furthermore, 42% of survey participants say that it’s not necessary to contribute to a CAP every year because they can always make up for it later.

The study also finds that many investors don’t have a clear understanding of index funds.

Seventy percent of members surveyed incorrectly believe index funds are safer than the overall stock market, and more than half (56%) believe index funds deliver better returns than the stock market. Regarding diversification, 80% say that having a little bit invested in each option in a CAP is the best way to diversify, while only 13% say that investing in a target-date fund was an ideal way to achieve diversification.

Near-term needs are also having a negative impact on Canadian retirement plans. Forty-five percent of retirement savings plan members believe that taking a withdrawal from a CAP is a good option when they need money. Additionally, 62% of members say they wish it was easier to access money in their CAPs today.

“The necessary ingredients for successful retirement outcomes already exist, but many members do not understand the basics of their workplace retirement plans,” says Shawn Cohen, the company’s director of relationship management. “Making small changes in contribution amounts and avoiding premature withdrawals can have a big impact on the retirement outlook for Canadian investors.”

Copyright © 2020 Transcontinental Media G.P. Originally published on benefitscanada.com

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