Study shows financial advice gap for employees at small-medium and larger firms

Report reveals DC plans lead the way for retirement planning

Study shows financial advice gap for employees at small-medium and larger firms
A new study by Great-West Life has revealed an advice gap that exists for Canadian workers in small and medium-sized businesses compared to those at larger firms.

The 2016 CAP Benchmark Report shows that 63 per cent of sponsors with fewer than 499 employees provide financial advice, while only 52 per cent of sponsors with more than 500 employees do the same. This disparity is believed to be the result of larger companies believing this service is best handled by plan providers. 

The study: Forecasting the Future of Group Retirement Plans, also detailed that 57 per cent of defined contribution (DC) plan sponsors and 61 per cent of group registered retirement savings plan (RRSP) sponsors provided their members with access to professional financial advice.

According to Christine van Staden, vice-president, National Accounts, Group Retirement Distribution for Great-West Life, the report was positive in that it confirmed that many Canadians are planning for their future.

“The CAP survey confirmed that a strong majority of Canadian households are actually on track for their retirement savings,” she says. “What is very interesting is that so many of plan participants worry they won’t have enough for retirement. It ties back to financial literacy and members not fully understanding their DC plans. The majority of members are not investment experts, so they worry about the economy and how interest rates will impact their savings.”

Among respondents, DC plans have a 90 per cent participation rate, with group RRSPs at 60 per cent and deferred profit sharing plans (DPSPs) amounting to 63 per cent. In van Staden’s view, the incidence of DC plans being so high is reflective of how the industry has educated the masses on these products.

“It’s not that surprising that DC plans have a 90% participation rate, because over the years our industry has communicated the need for plan sponsors to consider mandatory participation in their DC plans,” she says. “As a result, many sponsors have moved in that direction.”

Heading forward, van Staden’s believes RRSP plans will grow in popularity as more and more Canadians educate themselves on their merits.

 “An RSP is completely voluntary, so it is up to the member to contribute,” she says. “Over time, we do expect group participation in group RSPs to increase as financial literacy becomes more targeted and people understand how to set a retirement goal.”

In this country, there is no legal obligation to pay extra into a separate retirement account outside of the CPP. That may have meant workers electing not to do so in the past, but with greater financial literacy, attitudes are changing.

“In Canada we have the cap guidelines not legislation, so plan sponsors are left to educate their employees about what they are leaving on the table,” says van Staden. “Waivers have become the mechanism used by sponsors to ensure members understand this. Putting a waiver in place certainly puts the onus back on the member so they decide to increase their contributions.”

Educating the general public on proper financial planning can be done faster and easier than ever before. Providers have a number of ways to spread their message, which makes the medium critical. It also means alternating your approach according to the demographic in question.

 ”Employers are grasping that and proactively putting communications strategies in place,” she says. “Millennials are going to be more tech-savvy and will learn in a different manner than those nearing retirement that absolutely want someone to talk to. There’s a spectrum that needs to be considered when determining how to communicate to your population.”

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