Let’s change the conversation about CAPs
A revolution in retirement plans is under way. People are living longer. Savings rates are low. Employees lack engagement with their workplace retirement plans. And the burden of financial risk is shifting away from employer/government defined benefit pensions and on to individual members. The result: a growing reliance on workplace Capital Accumulation Plans, or CAPs.
This is a global phenomenon, and Canada is no exception. Increasingly, Canadian workers rely on defined contribution plans, group retirement plans and other CAP vehicles as vital complements to government pensions and personal savings. Yet the challenges are clear. According to Aon research, only two in five Canadians enrolled in CAPs have set a goal for retirement savings; the same proportion do not take full advantage of employer contribution matching. Small wonder that more than half are concerned they will not have enough money to retire when they want to.
At Aon, we believe it’s time for organizations to address these challenges by rethinking their approach to CAPs. In a recent Aon Points of View white paper that leverages our global insights into retirement solutions, we share four key building blocks for more successful CAPs.
The first is Smart Design, which begins with a clear definition and understanding of the CAP’s purpose and its alignment with corporate philosophy. Its design should promote personal engagement, making it easy for members to maximize savings, while taking into account the reality that many will still not take sufficient personal responsibility. How? By leveraging their inertia toward positive outcomes, for instance through automated features like auto-enrolment and default contribution rates.
The second key is Smart Engagement. For one thing, that means providing members with plans that promote flexibility and choice, empowering them through continual support to optimize their CAP retirement savings. Communications should be personal, simple and targeted based on the member population. Technology can help – for instance, by allowing individuals to set their own targets and track their progress. CAP sponsors should also provide education, advice and solutions so members can make sound decisions. In that respect, a CAP program will be more successful if members can integrate it into an overall financial strategy both before and after retirement, to help ensure the transition from working and saving to retirement and decumulation is gradual, guided and planned.
The third essential element of a more successful CAP is Smart Governance. The Canadian legal and regulatory environment can be difficult to navigate, and a robust governance framework can provide enhanced quality assurance and risk management. And finally, Smart Implementation involves focusing on improving outcomes for individual plan members. Investment strategies should be fee efficient and tailored to each CAP’s unique and evolving demographic profile, addressing the risks and objectives at each stage of members’ saving journeys.
We believe it’s time to change the conversation around CAPs. In our view, plans that use Smart Design, Smart Engagement, Smart Governance and Smart Implementation can help sponsors and members alike better address the realities – and the challenges – of Canada’s evolving retirement landscape.