Only 5 per cent aware of underfunding problems: Survey
Eighty-three per cent of Canadian defined benefit (DB) plan members trust that when they retire, their organization's DB plan will have sufficient money to pay them, according to a survey by RBC Dexia and Grant Thornton.
Only five per cent of the respondents said they recall hearing about underfunding problems or deficits in DB plans while four per cent were aware DB plans are becoming more rare and being phased out.
"Plan members remain in the dark about the issues and challenges facing Canadian defined benefit plans. The pressure for DB plans to keep members aware of the viability and health of their plans increases with every new high profile plan that struggles, particularly in a financial market with so much uncertainty and tumult,” said Regina Baezner, a principal in the pension and benefit practice at Grant Thornton.
However, 31 per cent of the 1,006 respondents said they don't know what percentage of their current annual income they will need to achieve their expected standard of living in retirement
"Belief in the promise of a competitive pension payout remains strong in the minds of Canadian defined benefit plan members," said Scott MacDonald, head of pensions, insurance and financial institutions product at RBC Dexia. "Even with the well-documented and highly-publicized challenges DB plans have faced, this research shows that plan members both rely on and trust that their retirement income will be there when they are ready to stop working."
Three-quarters of respondents said their DB pension plan is their primary vehicle for retirement savings and, on average, members expect 55.7 per cent of their retirement income to come from their DB plan. They expect a further 17.2 per cent to come from government sources, such as Canada Pension Plan (CPP) or Old Age Security (OAS). Another 12.6 per cent is expected to come from registered savings plans.
"Plan members may need to adjust their expectations to be able to enjoy their retirement while not earning a full income,” said MacDonald. “It's up to plan sponsors to help educate their members about the amounts that might be needed to enjoy a long and fruitful retirement."