Canadians missing out on billions in retirement savings

Do you max out your benefits?

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Canadians are missing out on billions of dollars of potential retirement savings every year by not taking full advantage of matching contributions by their employers in group RRSP and defined contribution retirement plans.

Tom Reid of Sun Life Financial estimates more than $3 billion a year of potential company contributions go unmade because employees don’t make the required matching contributions to obtain them.

“That accumulates into a big number in a very short amount of time,” said Reid, senior vice-president of group retirement services at the insurance company.

In a group registered retirement savings plan or DC pension plan, employees and their sponsoring company each make contributions. The amounts vary from plan to plan, with some mandatory and others voluntary.

Reid said it’s “kind of critical” to find a way to get people to contribute the maximum allowed by their plans.

“Where are you going to get a better return?” Reid asks.

“If your company is willing to match dollar for dollar or 50 cents on the dollar for the contributions you put in, you should put in as much as they let you.”

In addition, many defined contribution and group RRSP plans offer lower-fee options that aren’t otherwise available to individual investors.

A survey by Great-West Life found significant numbers of respondents weren’t taking advantage of voluntary plans. It found a 79% participation rate for voluntary DC plans and just 51% for voluntary group RRSPs in 2014.

The report also found large numbers of plan participants are not securing the maximum company matching contribution, with 73.9% of DC plan participants receiving the maximum and just 62.8% of group RRSP participants.

Ken Millard, vice-president of group retirement services, products and pricing at Great-West Life, said younger investors who don’t max out their employers contributions are particularly hurt because of the power of compounding investment returns they are missing out on.

“It is incredibly difficult to make up that ground later in life,” Millard said.

“You need to start early. You need to start with meaningful contributions.”

One comment on “Canadians missing out on billions in retirement savings

  1. I used to work for an employer that matched our RRSP’s by 4% annually. The maximum amount was $300 a year. It is great as it did help us save, invest more.

    I calculated over the 9 years I worked there plus all the compound interest it will be invested at 4.6% long term zero coupon bonds we bought, it was $11,000.

    However, I would say this extra money is great but the big difference was the annual income tax refunds and all that compound interest earned on our RRSP’s.

    My wife and I contribute the maximum RRSP’s every year and the $5,000 a year in RRSP income tax refunds in 33 years will add to $10,100 in interest even at today’s lower longer term rates of 3.4%.

    The actual $14,300 a year in RRSP contributions will add $28,783 in interest. This is the why we save, invest in our RRSP’s even though there is no employer match or incentive.

    I contribute the max

    Reply

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