As fewer Canadians are covered by workplace pension plans, less are choosing to contribute to RRSPs. The percentage of workers covered by a pension plan declined from 40 per cent in 2001 to 38 per cent in 2011, according to a report published by the Office of the Superintendent of Financial Institutions (OSFI).
At the same time, the percentage of workers contributing to RRSPs declined from 39 per cent to 32. How are Canadians supposed to afford to retire when they aren’t socking away any extra money? If this isn’t a clear sign we’re heading towards a retirement crisis, I don’t know what is!
Private Sector Pensions Hit the Hardest
The facts don’t lie – there is a widening pension gap between public sector haves and private sector have nots. While the public sector only saw a slight decline in pension coverage from 87 per cent in 2001 to 86 per cent in 2011, pension coverage in the private sector has declined from 28 per cent in 2001 to 24 per cent in 2011.
At first glance that might not seem so bad, but it’s the types of pensions in the private sector that are raising red flags. Defined benefit pension plans, which guarantee workers’ pensions in retirement based on earnings and years of service, dropped in overall pension coverage from 74 per cent to 51 per cent. Employers are looking to de-risk, shifting to investment risk to workers through less costly defined contribution pension plans.
Why Aren’t Canadians Saving?
As mentioned, fewer Canadians are choosing to sock away their retirement savings in their RRSPs. Even more worrisome is the fact that those closest to retirement have seen the biggest drop in RRSP contributions. RRSP contributions fell for workers aged 55 to 64 from 59 per cent to 46 per cent. Meanwhile, the percentage fell from 57 per cent to 43 per cent for those over age 65. The silver lining is that a lot of Canadians are choosing to contribute to their TFSA instead. The percentage of Canadians with TFSAs increased from 19 per cent in 2009 to almost a third of eligible Canadians – 31 per cent – in 2011.
Getting Started with Your RRSP
Opening an RRSP is as easy as a trip to your local bank branch. You can open an RRSP in person or online through a brokerage website like Scotia iTrade. If you’ve never opened an RRSP before, it’s probably a good idea to start with your neighbourhood bank (you’ll probably get a free cup of coffee, too). When you’re ready to open an RRSP, head to your bank with two pieces of identification in hand (at least one government-issued), such as your driver’s license and SIN card. Also bring along your most recent Notice of Assessment, so your lender will know how much you can contribute to your RRSP.
Next you’ll need to complete your lender’s application form. To find out your knowledge of investing and your investment goals, you will be asked to complete an Investor Profile Questionnaire. It’s important to answer the questions truthfully and honestly, as your lender will use the results to decide the types of investments that are best suited for you. Be sure to designate a beneficiary to ensure your retirement savings go to the person(s) you want when you pass away.
Once your account is open, you can start contributing. The easiest way to contribute to your RRSP is through pre-authorized contribution (PAC). Instead of making a lump sum contribution before the RRSP deadline (March 3, 2014 this year), you can spread your contributions over the year. Not only will this be easier to budget for, you’ll take advantage of dollar cost averaging. Another word of advice – it’s easiest to you schedule your PAC to coincidence with your employer’s pay schedule.
Contributing to Your Employer’s Group RRSP
Many employers offer retirement savings programs, such as Group RRSPs. Not only do you benefit from lower investment fees, often these plans come with matching contributions from your employer based on a percentage of your annual salary. For example, your employer might match 100 per cent of your contributions up to six per cent of your annual salary. That means if you contribution six per cent of your salary, your employer contribution another six per cent – it’s like free money!
Enrolling in your company’s retirement savings vehicles is as easy as trip to your company’s Human Resources Department or a visit to your company’s website. If your company’s retirement program is administered by a financial services company like Sunlife, you can often sign up on your own and start your RRSP contributions on your very next paycheque and watch your retirement savings grow.