Making financial literacy easier

Plan sponsors are failing their plan members when it comes to making them financially literate. At the Benefits Canada 2012 Benefit & Pension Summit in Toronto, participants in the DC stream heard that this is happening because sponsors are focused on the wrong goal. It shouldn’t be to turn members into CFAs. The goal should be getting them to make appropriate investment decisions.

In the session on the value of financial literacy, the speakers—Nigel Branker, partner, Morneau Shepell; and Christine van Staden, regional vice-president, group savings and retirement, business development, Central Canada, with Standard Life—said the focus should be on engaging members with personalized and customized tools and information to motivate them to care about their financial futures and make appropriate decisions.

“Employees need to take into account what they have, what they need and then what could happen,” said Branker. He advised that sponsors should use tools from their providers to customize information, such as age, account balance and expected retirement date. This is one way to get members to relate to the material when they read it.

“Members can’t make a decision when they don’t consider all the information. So the goal is to help members bring all of that together,” he continued. Sponsors must make it easy for members to incorporate other savings data (such as government pensions and personal savings) into retirement calculators. This allows sponsors to easily provide an accurate and personalized suggested range for what members should be saving to meet their retirement goals.

In order for sponsors to further customize communication and tools around planning for retirement, van Staden said sponsors need to segment their plan membership.

“What does your company’s employee segments look like? Then what are the needs of each of those individual groups?” she asked the Summit participants. Sponsors could segment their membership by demographics, life stage, contribution levels, investment selections or a combination of these.

Each of these groups will relate to planning for retirement differently. So once employers have determined the segments in their plan membership, they can create customized communication strategies and tools to engage those segments.

On a more individualized level, van Staden said the magic formula for engaging an employee is to consider her life stage (she could be just out of university, in her career path or nearing transition), her investment knowledge level and then, finally, the amount she has saved for retirement already.

A young employee who has just graduated from university with little exposure to pensions and no money saved for retirement will have different needs than a mid-40s mother of two who has been saving in the plan for 20 years.

“The focus for a younger employee will be to get him into a plan and saving,” said van Staden. The focus for an older employee, on the other hand, will be to ensure that she is rebalancing her portfolio and beginning to envision her retirement.

Segmenting employees into categories allows sponsors to meet employees where they are with their retirement needs, she said.

As with all plan member engagement programs, van Staden said it’s crucial to track the program’s effectiveness. “Define objectives of the plan based on the segments of employee population. Then review those objectives on an ongoing basis and make changes as necessary.”

Both Branker and van Staden agree that to engage members in their financial futures and make them more financially literate, sponsors need to personalize information to make it relatable for each individual. If members can see where they are at and where they need to be, this understanding should motivate them enough to make investment decisions.

Leigh Doyle is a freelance writer based in Toronto. leigh.doyle@gmail.com