Earlier this year, Benefits Canada hosted its annual DC Plan Summit. As part of the agenda, Ole Settergren from the Swedish Pension Agency talked about that country’s pension system and what Canada can learn from it.
One of the ways the Swedish system is drastically different from ours is, its premium pension plan has more than 850 investment funds for members to choose from. “Then how do you educate the plan members?” a puzzled attendee asked during the Q&A after Settergren’s presentation.
His answer: they don’t. “We have reached the conclusion, after a lot of intensive debate, that education is not the way to go,” said Settergren, adding, “it is impossible to educate people to choose the right funds.”
This stunned the audience. A room full of people dedicated to retirement planning, communication and education, and this guy is saying, “We just don’t go there”? Shocking!
But I say, good on him for being honest—and on the Swedish pension system for recognizing a losing battle when it saw one.
When we talk about DC plan members and their behaviours, we’re always wondering why they aren’t more active and engaged in saving for retirement. But members aren’t just numbers in enrollment data; they’re real people with busy lives, hectic schedules and other more immediate problems. Every day, they’re worrying about who’s going to pick up the kids from school, whether their parents are taking their prescriptions, why the car is making a rattling sound and how much it’s going to cost to fix it…not about retirement planning.
Yes, we need to make people aware of the risks of their investment choices (or lack thereof ). It’s in the CAP Guidelines, and it’s the right thing to do. But it’s time for the DC industry to regroup and refocus its efforts.
Make DC plans mandatory and auto-enrol people so they’re forced to save unless they actively opt out. Design plans to remove as much decision-making as possible from plan members. (Let’s face it: most people make poor investment decisions, and they don’t really want to make them anyway). Use default options that generate income, not just maintain balances, to help reduce the risk of people outliving their assets. And—DC providers—show your leadership in this space by creating new and better decumulation products to optimize retirement income, since the choices a plan member makes in retirement can drastically affect how long that income will last.
Can we really expect DC plan members to prioritize saving for retirement over a sick child or a leaky roof? Fuggedaboutit. It’s just not going to happen.
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