Do I Have a Retirement Plan?

Recent Statistics Canada surveys have revealed the alarming fact that a very large part of the Canadian workforce do not know if they have a retirement plan or not. Some workers thought that they had a Group RRSP but do not. Others thought that they belonged to a registered company pension plan when they were actually in a group RRSP. There was a startling group of people that thought they had a group RRSP or a company pension plan when they had no retirement plan coverage at all. Many workers do not know the difference between a group RRSP and a company pension plan.

A widely quoted 1999 Statistics Canada study revealed that one third of families with the major income earner aged between 45 and 64 and still working had not saved enough to replace two thirds of their income at retirement. The misconceptions of their company plan may be a contributing factor to that shortfall. It is important that employers make their workers aware of the retirement options that are available and explain them. However, in order to properly relay this knowledge, the human resources people at these companies need to understand the retirement plans as well and that is part of the problem.

Almost every week, I sit down with people and explain their company’s retirement options. Other than the fact that every worker should know this information is the startling fact that some of these people are the very human resources people that should be explaining it to others. They never had the plans explained to them. Only when these problems are solved will workers be able to make sound decisions about retirement and savings.

In the recent study, two million workers reported having a group RRSP. About 500,000 of them were employed by firms that did not have group RRSPs. Overall, about half of the workers included in the study reported having a group RRSP or a company pension plan but 8% of the employers had neither type of plan. That means that a shocking 390,000 people thought that they had a type of retirement plan that did not exist.

Pension regulations require employers to provide pension plan members with an annual statement. This statement will show items such as the length of the plan membership, the amount of the employee contributions if required, estimates of future retirement benefits, and current benefits on termination, death or disability. In the case of group RRSPs, financial institutions produce an annual report for each individual showing the current market value of the investments. Both types of plan statements clearly indicate the type of plan. It is at this point where the similarities of the statements diverge. Some are nice and easy to read where others are next to impossible. The recipients of these statements know that they have some sort of plan that makes them feel much better than if they did not have a plan. They file it and forget about it, comfortable in the knowledge that they have some sort of retirement plan.

Financial planners can help solve the mystery. As your plan grows and you inch closer to retirement, it is important that everyone know their options and the level of income that they can expect in retirement. By combining a company plan and a private plan, you can pick your retirement date and the income that you will want to enjoy for many years.

I would like to recognize an analysis of a Statistics Canada report written by Monica Townsend in the Investment Executive newspaper that I used as a reference for some of this article.