The comprehensive study of over 2,000 members from 17 Canadian-based DC pension plans conducted in March 2004 indicates that only 28% of employees feel they will be able to retire when they want. The average age at which employees plan to retire is 61, or five years older than they desire.
These results are even lower than findings from a similar survey of plan sponsors conducted by SEI in November 2003. A comparison of other findings reveals key discrepancies between employee and employer perceptions of DC plans. For example, employers believe 38% of employees will have enough to retire on, but only 6% of employees surveyed feel their pension will be sufficient.
The recent study also reveals that employees have limited knowledge of investing and of their DC pension plan in particular. Less than one in six employees (15%) consider themselves to be "very knowledgeable" about retirement planning and about one-third (34%) indicated that they did not feel knowledgeable at all.
Employees are also unclear on many of their DC plan features. For example, 75% of employees surveyed believe they can make their own contribution to their pension plan, when in reality, only 51% of organizations allow them to do so. In addition, only 39% of employees correctly knew that their pension plan is compulsory. In reality, 71% of members are in compulsory plans.
"Employees told us they know little about investing and their own pension plans. As it turns out, when tested, their actual knowledge was even lower." said Patrick Walsh, President and Chief Executive Officer of SEI Investments Canada. "In addition, many employees are not taking advantage of educational opportunities provided by their employer. When they do, this education isn´t working and many are using outside investment advice."
In a DC pension plan, the level of contributions is fixed at a certain level and benefits vary depending on the return from investments. Unlike Defined Benefit (DB) pension plans, DC plans give the employee choice in where to put their savings, usually among stock, bond and money market investments. According to the December 2003 issue of Benefits Canada magazine, total administered assets for the DC plan market in Canada were $55.3 billion as of June 30, 2003, a 5.7% increase over the prior year.
According to the survey:
Rather than more education, DC plan employees want sound, trustworthy advice on their pension plan. Fully 79% of employees surveyed wish to receive advice about their specific pension plan. While 42% of employees indicated that they make investment decisions on their own, 54% of employees are currently receiving some form of outside investment advice, most often from a financial planner, independent investment advisor or their banker.
About one-third (35%) of employees surveyed say they are maximizing available contributions to their RSPs. Less than one-fifth (19%) of employees would withdraw funds from their plan today if they could do so without tax penalties, versus employers who thought 42% of employees would do so.
A more complete summary the survey is available from SEI Canada´s website at http://www.seic.ca.