CAP survey reveals surprises

Plan member behaviour
Despite the downturn the economy has taken over the last year, 50% of survey respondents said they didn’t change their spending, savings or investing behaviour in anyway due to the recession. Twenty-one percent said they changed their savings and investing behaviour, but only 5% said they were investing less.

Some in the industry have equated this to better education and understanding among plan members, but Jeff Aarssen, vice-president, distribution, group retirement savings, with Great-West Life, says, “I still think inertia is the driving force behind those results.”

Another highlight among the changing behaviours of plan members is that they appear to be taking more responsibility for the outcomes of their retirement plans. In fact, only 15% of plan members strongly agreed that plan sponsors have a responsibility to ensure that investment choices they make are indeed the best choices for them—down from 30% when the question was first asked in 2006.

Engagement and value
Unfortunately, the findings in the engagement and value portion of the research aren’t as rosy.

The number of plan members who said they had an excellent or very good understanding of their retirement plans has dropped significantly. In 2007, 47% said they were at this level. This year, 59% of respondents said their understanding is less than very good. However, the most disturbing finding is the rising number of people who say their understanding is very or somewhat poor—16%—up from 12%.

“From a plan sponsor perspective, it is disappointing to see that such a high percentage of employees don’t understand their plans,” says Melanie Gonda, senior benefits specialist with PotashCorp. “I think it is particularly important for plan sponsors to ensure that employees understand their plans because that leads to satisfaction.”

Investments and risk tolerance
This year, in light of what has happened, Benefits Canada felt it important to ask survey respondents if they agreed with the following statement: “There will always be periods of volatility in the financial markets, so I don’t get too worried about short-term decreases in the value of my investments.” Eighty-seven percent said they agreed (28% strongly agreed and 59% somewhat agreed). The survey also asked members if they agreed with this statement: “In periods of market instability, I believe you should hold on to your investments and wait for the market to improve.” Again, the results were positive with 87% in agreement (33% strongly and 54% somewhat).

However, these results, combined with the low number of respondents (34%) who said they had an excellent or good understanding of asset allocation (34%) are troublesome for Oma Sharma. “Lots of investment information is being provided to plan members, but it’s clear that information does not equate with understanding,” she says. “Increasing member understanding and engagement is critical to DC plan success.”

Despite their level of understanding (or lack thereof), plan members ages 55 to 64 were more likely to say their risk tolerance had decreased (28%), while members ages 18 to 34 were more likely to say it had increased (18%). On the whole, however, most plan members haven’t allowed market turmoil to affect their tolerance for risk.

Retirement planning and transition
Less than half (40%) of respondents said they have an excellent or very good understanding of the amount they need to contribute to their retirement plans in order to retire with the amount of money they need— that’s down 7% from last year. That said, the number of members who say their understanding of what they will need is somewhat good increased 5% to 39%, but those who said their understanding is very or somewhat poor is also up—from 15% to 19%. While these numbers aren’t great, at least plan members are generally more realistic about where their money will come from.

In 2008, respondents thought their defined contribution (DC) plans or RRSP would provide half of their retirement income, whereas now, they are saying those vehicles will only account for approximately 30%. They now expect their personal savings to provide almost 30% of their needed retirement income, with government sources to supply about 20%.

“There is a big reality check happening here,” says Edith Warr, a partner with Avalon Actuarial. “People are starting to see that they can’t expect as much money from their DC plans or group RRSPs, and there is a heavier reliance on personal savings. It’s particularly interesting that people are expecting less from their DB plans. There have been a lot of discussions lately about the inability of companies to meet some of their financial obligations. I think people are now beginning to realize that a bigger part of their retirement savings is going to have to come from other sources, other than company retirement plans.”

Education and advice
It’s clear that when it comes to their retirement plans, members are indeed confused because the survey findings show a disconnect between what members think and what they actually do.

Twenty-three percent of participants say they went to their own financial advisor for financial advice, and 19% turned to family and friends. Sixteen percent asked for advice at their bank or financial institution, 7% looked to the media, and only 5% consulted their employers.

“We’ve got to ask ourselves why only 5% went to their employers,” asks Karrina Dusablon, director, education centre and global management, with Desjardins Financial Security. “We give them so much information, so the question is not if there is enough education, but do they believe in the information? Do they believe that the tools provided are valuable, which will call them to action and have them feeling a sense of engagement?”

However, 89% of respondents said they would likely act on information offered by their employers or a qualified individual chosen by their employers. In fact, the 62% of respondents who say they have little or no understanding of asset allocation were more likely to indicate that they would be likely to use recommendations, from a qualified individual chosen by their employer.

Of course, these results are just a glimpse into the behaviours, thoughts and perspectives of CAP members. The full report was published in the November issue of Benefits Canada. If you missed that issue, you can read the report here.

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