Experts say group registered retirement savings plans (RRSPs) have risen in popularity as employees are increasingly tasked with retirement planning amid a broader decline in pension activity.
Gren Austin, the head of Wealthsimple Work, said in an interview with BNNBloomberg.ca last week that his organization works with employers across Canada looking to create group retirement savings plans. He said that group RRSPs have become the most popular retirement savings plan among clients.
“We know broadly that pension involvement is down over the decades. And so the onus becomes on the individual, on the Canadian, on the employee, to pay for their own retirement,” Austin said adding that group RRSPs can make a meaningful difference in retirement savings.
In November of last year, research from Deloitte Canada found that only 24 per cent of private sector workers participated in an employer-sponsored pension plan.
According to a statement from Wealthsimple on Tuesday, less than one per cent of Wealthsimple Work clients offer a pension plan. The statement said that consumer preferences are changing and employers “are realizing the cost requirements to run a pension are high and opt to follow the demand for group RRSPs.”
“There is this decades-long historical arc, in that the big pension groups dominated the landscape for a long time in the 60s and 70s. And then those started to fade and things like GRRSPs took over as the main account that sort of dominated the space,” Gren said.
Julie Petrera, senior strategist with Edward Jones Canada, said in an interview with BNNBloomberg.ca last week that while there is still some level of government assistance for retirement savings, employees take on the bulk of saving responsibilities.
“The onus is largely on employees to save for their retirement in the absence of good pension plans,” she said.
Group RRSP matching
Austin said that group RRSPs often come with a matching component, where some employers will match employee contributions up to a certain level.
“There’s not a lot of other investment scenarios where you can just get that return right away and that’s before even the market does its thing and compound interest does its thing. So, it’s a really great vehicle to start saving and building up in your RRSP,” he said.
Colin White, the president and CEO of Verecan Capital Management, said in an interview with BNNBloomberg.ca last week that matching components for group RRSPs often range between two and four per cent. He also highlighted that group RRSPs often go unutilized.
“There’s an amazing number of people that don’t take advantage of that and they really should. It’s free money. If your employer’s going to put money into an RRSP plan, you should take that money,” White said.
Flexibility, transparency
According to White, the rise of group RRSPs has happened for a few reasons, including the difficulties operating pension plans.
“Pension plans are difficult and complicated to maintain, and they do come with a financial liability that firms have struggled with. And as people have moved around more often in their careers, moving a pension plan is a very difficult and cumbersome thing to do,” he said.
White also highlighted that traditional pensions are “restrictive from a legislative perspective” and come with liability.
“So the group RRSP is a far more transparent solution. You know exactly where you stand at any moment in time and you see yourself making progress,” he said.
White also noted that group RRSP offerings have risen in popularity amid a “more transient workforce” with employees changing jobs more frequently.
According to Petrera, group RRSPs can help employers with recruiting.
“Group RRSPs are part of a compensation plan. And they’re something that employees would find attractive. So I think there’s been a rise in these as employers seek to attract talent to organizations,” she said.