If you’re a capital accumulation plan (CAP) sponsor, you probably expend a lot of time and energy on member communication and education. That’s also true for the CAP industry at large, as we worry about future generations of workers who will have to delay retirement or who won’t be able to retire with the income they need.
Why aren’t CAP members saving more? With all of the information available, disseminated through so many different media, how come they still don’t understand their plans? How can we get them to pay attention and prevent them from making unwise or uneducated choices?
Well, according to our 2013 CAP Member Survey…we can’t. Or, at least, not the way we’d like to.
The findings show that most CAP members just don’t have a clue about saving for retirement. They don’t prioritize their CAPs— out of a hypothetical $1,000 bonus, they’d allocate only $36 to their employer-sponsored retirement plan. Few (21%) have a formal, written financial plan. They have unreasonably high expectations for the rate of return they’ll receive year over year (14.3%, on average, up from 8.8% last year). And most (60%) believe their employer has a responsibility to ensure that the investment choices they make in their retirement plan are the best choices for them.
Yet they’re generally confident—perhaps overconfident—that their CAP will provide the income they’ll need.
Over the years that we’ve been conducting this survey, I’ve noticed a swing in sentiment. The need to educate and inform will never disappear—in fact, it’s a critical part of using these plans to attract and retain talent. But, increasingly, the dialogue is shifting to brass tacks. How do we improve pension coverage across Canada and increase retirement savings, regardless of how well people understand pensions and investments?
In the 2013 CAP Member Survey report, which you’ll find in this issue, our advisory board experts offer some solutions. Make plans mandatory rather than voluntary. Auto-enrol new members and auto-escalate their contributions. Simplify investment options. Use target-date funds as a default. Lobby for legislative change to protect plan sponsors as they try to protect their members.
The concern has always been that members are going to fight the loss of freedom—but the reality is, most would gladly relinquish it. In their support for auto features and their trust in the employer to make investment decisions for them, they’ve told us so.
If we really want to improve retirement security, we need to take away most of the choice—and the associated responsibility— from CAP members. The best way to help them is to save them from themselves.
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