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Retirement savings

January 10, 2013

The importance of joining a group pension or RRSP

Does your employer offer a group pension plan or RRSP? Financial blogger Jim Yih says they’re two of the best ways to save for retirement.

For the past few years, the federal government has been very concerned about the retirement gap and the lack of savings and preparation for retirement by Canadians.

In 2009, the government appointed a 13-member task force on financial literacy, chaired by then-Sun Life CEO Donald Stewart, to provide advice and recommendations on a national strategy to strengthen financial literacy for Canadians. The task force came up with a 106-page report.

Pension reform has also been a hot topic, with the government seeking ways to help Canadians better prepare for retirement by looking at government benefits and the implementation of a new Pooled Registered Pension Plan. This is proving to have significant challenges.

Are Canadians saving enough for retirement?

According to a survey by the Canadian Payroll Association, Canadians think they are not saving enough.

In the September 2012 survey report, almost half of those responding said they are putting away 5% or less of their pay, which is about half what financial planners recommend. In fact, 47% said they would be in dire financial straits if their pay was delayed by as little as a week.

Survey figures show 73% of employees said they have saved less than a quarter of what they want to accumulate. Among those 50 and older who are contemplating retirement, 45% said they are only a quarter of the way to their savings goal.

This data seems consistent with the latest savings rate numbers from Statistics Canada. Alarmingly, the savings rate in Canada has been under 5% for the past 15 years.

Who’s saving money?

One group of Canadians who are saving money consists of those born with the savings gene. I call these people “natural savers,” but you might refer to them as “frugal cheapskates who never spend money and therefore have no fun.”

All joking aside, the problem is very few people are natural savers. It’s more natural to spend than it is to save. There are far more opportunities to spend than there are to save. Maybe that’s why savings rates are so low in Canada.

Forced discipline is important

So the main problem is most people do not have the natural discipline to save. As a result, the other Canadians who are saving are those who are essentially forced to, through group RRSPs or pension plans at work. Studies show retirement savings rates are higher among those who are members of workplace savings plans.

My two cents’ worth

If you’re enrolled in a group RRSP or pension plan through work, chances are you are saving more for retirement than most Canadians. If your plan is voluntary and you are not taking advantage of free matching money from your employer, you are missing out on a huge opportunity.

In my role as a consultant for group RRSPs and pension plans, I hear many employees admit that they would not have the self-discipline to save if it was not for employer-matching and automatic deductions from their paycheques.

Given the statistics, if the government wants to help Canadians save more money, it may want to look at creating more incentives and opportunities within workplace savings programs such as group RRSPs and pension plans for employees to save from their paycheques.

Jim Yih is a group retirement consultant at Clearpoint Benefit Solutions and founder of the award-winning RetireHappy.ca blog. For more information about Jim Yih, visit JimYih.com.

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