Collectively, Canadians are missing out on as much as $3 billion in pension contributions.
That’s according to estimates by Sun Life Financial, which says many Canadians aren’t taking full advantage of defined contribution pension plans offered by their employers.
In those plans, an employer commonly contributed three to six per cent of an employee’s wages to a pension fund – as long as the employee contributes the same amount.
“If you’re putting a total of 9 per cent of your pay away for 35 years, that’ll go a long way toward replacing a lot of your income in retirement,” said Tom Reid, a senior vice-president with Sun Life Financial.
Reid cites other financial pressures as the main reason why more Canadians put little or none of their paycheck in define contribution plans, and says some would be surprised at how quickly any income set aside can be forgotten about.
“Once you start doing it, the behavioural effect is that you just kind of live with whatever’s left over in your paycheck,” he said.
“You don’t think about CPP contributions, you don’t think about taxes … you just look at the net amount and think ‘That’s what I’m going to live with.’”
Katherine Rapp of Corporate Benefit Analysts says she sees the same trend with the employers and employees she deals with.
“We see people either not joining the plan, or joining at a contribution rate that isn’t maximizing the amount that the employers are willing to match,” she says.
Particularly concerning to Rapp are young workers, who are even less likely to give serious thought to saving for retirement.
“People are hesitant because they feel it’s complex, and financial issues are intimidating. There’s no need to be (intimidated),” she said.
“I’ve never seen a retiree come in and tell me that they’ve saved too much money.”
Although defined contribution pension plans are generally a hallmark of large organizations, Reid said smaller employers are increasingly turning to them as a means of attracting and retaining employees.
Rapp estimates that about half of the Canadian workforce is offered a defined contribution plan by their employer.
