During this period of reform, there’s been a lot of discussion about how to improve pension coverage across Canada, and how to keep the current system sustainable. One solution is the pooled registered pension plan (PRPP) announced by the federal government. But the PRPP framework doesn’t make PRPPs mandatory for employers that don’t have other coverage, nor does it incorporate features such as auto-enrollment or auto-escalation. It’s up to the provinces to take the next step, as Quebec has done with its voluntary retirement savings plan, making it mandatory for employers without other coverage to offer and including auto-enrollment.
When it comes to implementing auto features, we can look abroad for examples. The U.K. is currently in the process of introducing auto-enrollment, which comes into effect as of October 2012. Yet research conducted by Legal & General (a U.K. provider of risk, savings and investment management products) finds that, of 107 employees who will qualify for auto-enrollment into their employer’s pension plan, 33% will opt out.
If auto features don’t work to get employees into the plan and help them save for the future, then what will?
We’ve tried to turn plan members into savvy investors. Yet Benefits Canada’s CAP Member Survey has repeatedly found they’re confused about even basic plan and investment concepts.
We’ve tried to use member inertia to our advantage by focusing on plan defaults with better return potential, such as target date funds. But will they be enough? And if we can’t get members to make investment decisions today, what happens when they actually retire?
Now we’re looking to auto features—only to find that members may opt out of contributing even if they’re automatically enrolled.
As industry stakeholders, we have a responsibility to develop innovative investment products, communicate plan information and offer retirement planning education to members. But we’re not responsible for what they do—or fail to do—with all of these tools.
It’s time to shift some of that responsibility back to the individual. Of course, the industry will continue to look at ways to engage plan members, but each of us must also take ownership of our own financial future. And for that shift in mentality to occur, we still have a long way to go.
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