BMO Financial Group

BMO Financial Group
BMO Bank of Montreal

BMO Bank of Montreal

January 31, 2012 09:23 ET

BMO Retirement Institute Report: Are Employer Pension Plans Losing Their Appeal?

- Canadians place much higher importance on salary and job flexibility than a good pension plan when evaluating job opportunities

- More than half do not know what their ideal workplace pension would look like

- Half of working Canadians have already had five or more employers; 20 per cent expect to have worked for 10 or more employers over their careers

TORONTO, ONTARIO--(Marketwire - Jan. 31, 2012) - A new report from the BMO Retirement Institute reveals that Canadians are not placing a high priority on employer pension plans when evaluating job opportunities.

The report, titled Perfecting the workplace pension: the quest continues, explores the shift in Canada from the traditional defined benefit model to the defined contribution model.* As a result of this change, the responsibility for properly managing one's pension now lies primarily with the employee rather than the employer.

The report found that Canadian employees are not placing a high priority on a good retirement pension when evaluating job opportunities. For example:

  • Only seven per cent considered a good retirement pension to be the most important factor, compared to salary (47 per cent) and flexible work arrangements (22 per cent).
  • Only nine per cent of respondents stated it was very likely they would leave their current position for another one if the new employer offered a better workplace pension/savings plan.
  • More than half (51 per cent) could not identify the must-have features they would include if given the opportunity to design their own workplace pension plan.

The report also found that half of Canadian workers have already had five or more employers since they started working; twenty per cent expect to work for 10 or more employers over their careers.

"The employer pension used to be a lot simpler because, in the past, Canadians would generally stay with one employer throughout their working career," said Tina Di Vito, Head, BMO Retirement Institute, and author of 52 Ways to Wreck Your Retirement… and How to Rescue It. "Now, because employees switch jobs so often, many have to deal with multiple pension plans during their career. Additionally, with the shift from defined benefit to defined contribution plans, the responsibility for properly managing a workplace pension now lies with the employee rather than the employer."

If managed correctly, a defined contribution pension plan can be a valuable tool that can help see you through retirement. However, Ms. Di Vito noted that the biggest challenge is that most individuals do not have the time or investment knowledge to take an active role in managing their own plan. In these cases, she suggested that it is best to take advantage of automatic default features and seek the help of a financial professional who can best determine the most appropriate investments for the plan.

Ms. Di Vito concluded by stating that, in many cases, it is advantageous for younger Canadians to seek employment with organizations that offer defined benefit pension plans. A defined benefit plan will provide them with retirement income that is independent of market performance, and relatively high (often 60-80 per cent of their annual salary once they reach the 30-40 year range in service years).

For those in a defined contribution plan, Ms. Di Vito offers the following advice:

Educate yourself - If your employer offers a pension plan, familiarize yourself with the plan. If you already partake in a pension plan, take the time to understand how the plan works, including its various options and details.

Take advantage - Take full advantage of your workplace pension plan, including any employee matching programs offered, and auto features such as automatic enrolment and auto-escalation. However, ensure that you continue to stay actively involved.

Diversify your retirement savings - A pension plan should not be the only retirement vehicle you have. A Registered Retirement Savings Plans (RRSPs) is an equally important investment tool that can help you save for retirement. RRSPs are especially effective for self-employed individuals who do not receive a workplace pension.

Talk to an expert - Unlike defined benefit plans, defined contribution plans require individuals to make investment decisions on their own. For well-informed decisions, it is best to talk to a financial professional who can provide guidance on how to fit such a pension plan into your overall retirement plan.

To view a copy of the full report, please visit:

*Definition of Defined Benefit and Defined Contribution Plans:

Defined Benefit Plan: Commonly used in the public sector, the Defined Benefit plan specifies the set pension amount an employee will receive upon retirement; that amount is then guaranteed by the employer throughout the employee's retirement, regardless of how the investments have performed.

Defined Contribution Plan: Rather than establishing a guaranteed income amount during retirement, a Defined Contribution plan specifies the contribution amount during the time of employment, and the retirement income amount depends on how well the contributions have been invested.

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