TORONTO, ONTARIO--(Marketwired - Feb. 24, 2016) - More than half (56 per cent) of Canadian employers with defined contribution (DC) retirement plans(1) think their employees are saving enough for retirement. However, there seems to be a divide between perception and reality with only 24 per cent of employees who feel confident they're saving enough, according to the latest DC Pulse survey from BlackRock Asset Management Canada Limited (BlackRock Canada).
The survey of workplace plans and employees uncovered significant disconnects across the DC landscape, most notably the stark contrast between the employers' awareness of their plans' effectiveness and employees' feelings about their own retirement readiness. With many employees counting on defined contribution plans as the foundation of their retirement, the need for action is greater than ever.
"Canadians are becoming increasingly aware of the looming retirement crisis," said Chip Castille, BlackRock's Chief Retirement Strategist. "When they take stock of their investment and saving plans, they're realizing that as it stands, the dollars won't add up. The result is that their expectations are increasing when it comes to the support they receive from their employers around their saving plans. Employers would be wise to recognize this as an opportunity to connect with and educate their employees to ensure they feel confident about their financial future in retirement."
Employers Overestimate Employees' Investing and Saving Knowledge
The survey uncovered a staggering gap between what employers think employees know and what they actually know about saving and investing. More than half of employers (53 per cent) think their employees understand how much money to set aside for retirement, compared to a minority of employees (32 per cent) who say they do. While employers (55 per cent) think their employees understand their investment options and other retirement savings information, far fewer employees (40 per cent) say they do. Even more concerning, only 33 per cent of employees say they are confident that they are on track to retire when expected - compared with 56 per cent of employers who believe more than half of their employees are.
This knowledge gap is mirrored by nearly half (47 per cent) of employers who think most employees have appropriate investment options, compared to over a quarter (27 per cent) of employees who actually report feeling confident with their investment options. These gaps in participant understanding of savings strategies, investment options and income potential, are where sponsors can create strategies and develop programs to educate their employees.
This isn't surprising considering that the latest Global Investor Pulse Report from BlackRock, Inc., released October 2015, also revealed very low levels of awareness among Canadians about how to reach their retirement goals. Fewer than one in 10 surveyed said they were very knowledgeable about the investment choices they should consider to maximize their retirement savings, with only 36 per cent claiming some level of knowledge. By contrast, almost one in four Canadians said that they had no knowledge of their investment options at all.
"DC plans are becoming the norm for employers as the number of legacy corporations with robust defined benefits (DB) plans dwindles," said Kin Chin, Director of DC Solutions, BlackRock Canada. "This means that an increasing number of Canadians will rely on DC plans in retirement, but what we're seeing is that there isn't a solid understanding of how to effectively and confidently contribute. What's encouraging is that there is a keen desire from these employees to learn more and increase their understanding. This presents an opportunity for employers to engage their employees in taking a more proactive role in their retirement planning."
Generation Optimistic: Millennials Lead in Retirement Planning Action
The youngest working generation - the millennials - are taking the most action when it comes to their savings. Sixty-three per cent of Millennials surveyed said they feel on track for retirement, while less than half of Generation Xers (47 per cent) and Baby Boomers (46 per cent) feel on track. Surprisingly, more Millennials (70 per cent) contributed to a DC plan in the past year than Gen Xers (61 per cent) or Boomers (63 per cent).
In contrast, Boomers said they are counting heavily on workplace savings to ensure a secure retirement (50 per cent), with many (29 per cent) calling it their biggest source of retirement income. But they don't have strong conviction about what to do with workplace savings when they retire with 18 per cent saying they're not sure and sentiment split between other options such as, "Invest in an account I manage" (26 per cent), "Keep it in the plan" (24 per cent), "Invest with financial advisor" (23 per cent), and "Move it to a savings account" (8 per cent).
Engaging Employees Key to Course Correction
The survey also showed that employers are listening to their employees and starting to take action. Over half of sponsors (52 per cent) recognize that their employees don't want to have to think a lot about retirement savings. Even more (59 per cent) agree that employees would value more company help.
In the past 12 months, many plan sponsors have heeded the call to make good savings practices automatic. For example, 28 per cent made catch-up contributions automatic, 24 per cent changed the default contribution rate, 23 per cent began auto-enrollment, 21 per cent made auto-escalation automatic and 20 per cent added a company match.
"Sponsors are realizing that they have the ability to improve retirement outcomes for people across generations and circumstances," said Kin Chin, "By using tools and insights they can close the gap between workers' current savings and the retirement income they may really need. Proactive engagement and communication between employers and employees will be essential to changing the outcome and preventing future generations from having to bear the burden of poor planning."
About BlackRock
BlackRock is a global leader in investment management, risk management and advisory services for institutional and retail clients. At December 31, 2015, BlackRock's AUM was US$4.645 trillion. BlackRock helps clients around the world meet their goals and overcome challenges with a range of products that include separate accounts, mutual funds, iShares® (exchange-traded funds), and other pooled investment vehicles. BlackRock also offers risk management, advisory and enterprise investment system services to a broad base of institutional investors through BlackRock Solutions®. As of December 31, 2015, the firm had approximately 13,000 employees in more than 30 countries and a major presence in global markets, including North and South America, Europe, Asia, Australia and the Middle East and Africa. For additional information, please visit the Company's website at www.blackrock.com/ca / Twitter: @BlackRockCA / Blog: www.blackrockblog.com/can
About the Survey
The BlackRock DC Pulse Survey is a major research study of 75 defined contribution medium, large, and mega plan sponsors and 500 plan participants in Canada executed by Market Strategies International, an independent research company.
The plan sponsors who were interviewed had at least $25 million in assets. The 500 plan participants surveyed were fully employed and participating in their employer's RRSP, TFSA, DPSP, or DC plan, with at least $5,000 in assets in their current account. All respondents were interviewed using an online survey.
(1) "DC" broadly defined as Capital Accumulation Plans in an employer's RRSP, TFSA, DPSP or DC Plan.
Contact Information:
Maeve Hannigan
416-643-4058
Maeve.Hannigan@blackrock.com