While the new tax-free savings account (TFSA) was well-received by the financial industry, the majority of Canadians have no idea what it is, according to a survey. With the product’s launch date just a few months away, plan sponsors have their work cut out for them devising communication strategies to help their members take full advantage of the new savings vehicle.
An ING Direct survey finds that more than three-quarters of Canadians don’t know what a TFSA is, or only have limited knowledge of it. Of those with some or full understanding of the product, less than 70% know about the $5,000 annual tax-free maximum and that funds are not taxed even when withdrawn.
Kim Duxbury, assistant vice-president of marketing, communications and education, group retirement services, at Sun Life Financial, is not surprised at the survey’s results. “This is pretty consistent with what we’ve been hearing,” she says. “I think it has largely to do with the fact that there hasn’t been much media attention on it.”
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Duxbury explains that while the Canada Revenue Agency is still examining the product’s implications, plan sponsors and service providers will have to be patient in the meantime. “It’s those details that industry will need to understand before they can start speaking publicly about it.”
According to Susan Deller, a principal at Eckler, TFSA communications strategies will be based largely on whether or not employers will offer a group product, and if it will piggyback on an existing savings program. She says employees who are already enrolled in a group savings plan should have a basic level of understanding on which the plan sponsor can build.
“Part of the challenge is that most TFSA providers have not yet rolled out their products, so employers who want to give their employees as much lead time as possible to factor TFSAs into their financial plans for 2009 can only provide high-level information,” says Deller.
As the survey results have shown, the intricacies of the TFSA are not easily understood by most plan members, creating a communication problem for employers. Duxbury suggests approaching plan members by demographic and making the product relevant to them. “How could it work for somebody who’s early in their career?” she says. “How could it work for someone who’s nearing retirement? If I have a flex plan, what about my unused flex credits? It’s all about modeling the scenarios after something people can relate to.”
Deller says that whether an employer intends to sponsor a group TFSA or not, the fact that there is now a new registered savings vehicle available to employees provides an excellent opportunity for employers to engage employees around the subject of savings. “The exercise of explaining the role of a TFSA within the context of their broader pension and benefits offerings will undoubtedly enhance employees’ understanding of their current program.”
To comment on this story, email jody.white@rci.rogers.com.