February 28, 2018

3 simple nudges that can help employees save for retirement

Date and target risk funds are much better options for boosting long-term savings

Winnipeg, February 28, 2018 . . . While a majority of Canadian plan sponsors (8 in 10) intend to maintain status quo on their group retirement and savings plans throughout the year, the 2017 Capital Accumulation Plan (CAP) Benchmark Report suggests there are simple adjustments they can make to help enhance employee participation, boost contributions, minimize withdrawals and ease their transition into retirement.

“Sometimes people just need a bit of a nudge,” says Brad Fedorchuk, Senior Vice-President of Group Customer Experience and Marketing for Great-West Life. “For example, today’s post-secondary graduates typically delay long-term savings goals for up to a decade in order to repay an average of nearly $27,000 in student loan debt. Great-West Life is piloting a student loan retirement and savings plan that will allow participating plan sponsors to use their existing group retirement and savings plans as a vehicle to ‘nudge’ eligible employees into saving earlier. Essentially, when the eligible employee makes a government student loan repayment, the employer makes a corresponding contribution to the employee’s retirement account.”

While this approach may not suit every employer’s needs, the CAP Benchmark Report offers insights into best practices for group retirement and savings plans, as well as simple and affordable steps employers can take to help encourage their employees save for their future selves.

Here are 3 simple nudges to consider:

1. Make it quick – offer immediate eligibility: Although immediate eligibility is the most popular option among DC plans (39 per cent), group RRSPs (55 per cent) and deferred profit sharing plans (34 per cent), Fedorchuk says a significant number of CAP plans still require new employees to wait before they can participate. Unfortunately, when the time comes, saving for retirement may no longer be top of mind. Eliminate the wait to enhance employee participation.

2.  Make it easy – offer appropriate default fund options: Investment menus are becoming increasingly complex, causing many to delay or avoid choosing funds. “It’s concerning that seven per cent of defined contribution plans and 13 per cent of group RRSPs still continue to use cash, money market funds or GICs as defaults, as these generally can’t provide long-term returns members need to reach their goals,” Fedorchuk says. Instead, target.

3. Make it count – implement auto-escalation of contributions: Employees typically perceive any decrease in take-home pay as a loss, even when it is in the form of deferred retirement income. Fedorchuk suggests helping them overcome this misperception by implementing automatic escalation of employee contributions in lock-step with their salary increases; this will help employees to make meaningful contributions that grow their savings for the future, while their take-home pay today remains relatively constant.

To find out more ways to make a big impact on the success of a group retirement and savings plan, download a copy of the full report here.

About the 2017 CAP Benchmark Report

Now in its thirteenth year and sponsored exclusively by Great-West Life, the 2017 CAP Benchmark Report represents an unbiased view of Canadian group retirement market trends. The report summarizes the results of updated plan sponsor profiles in the Canadian Institutional Investment Network (CIIN), in addition to an online survey fielded by Transcontinental Inc. Data was collected online between May and September 2017 from 254 organizations offering a defined contribution (DC) plan, group registered retirement savings plan (group RRSP) and/or deferred profit sharing (DPSP) plans to their employees.

About Great-West Life

Great-West Life is a leading Canadian insurer, focused on improving the financial, physical and mental well-being of Canadians. For more than 125 years, our customers across Canada have trusted us to provide for their financial security needs and deliver on the promises we have made. Together with our subsidiaries London Life and Canada Life, we serve the financial security needs of 13 million people across Canada. To learn more, visit www.greatwestlife.com.

For further information

Tim Oracheski
Director, Media & PR