Why Group RRSPs are Good for Employees AND Employers

Feb 27, 2018

“Money, it’s a gas. Grab that cash with both hands and make a stash.” Pink Floyd’s iconic line says it all. The analog cash register loop with its clinking coins is probably going through your head right now.

But it’s true. Money is the gas that fuels day to day life. Although building a stash high enough to feed our needs both now in retirement is an increasingly tall order, especially in an era of reduced pension support and sky high housing costs.

It’s a problem. Research indicates that an average of one in three Canadian employees struggle with their finances. Look around you right now and let that number sink in. These people are probably not contributing to their RRSP. A recent Statistics Canada report bears this out with a fifteen year trend down to a low 22.9 per cent of eligible filers contributing in 2015. 

It’s not that we don’t value the goal of a well-funded retirement. Seventy seven per cent of Canadians said they would even change jobs for better retirement benefits. In British Columbia, with its high housing costs, the figure is ten per cent higher. More likely it’s that saving an adequate amount individually is just not feasible for most people. Here’s where employer sponsored retirement plans come in with their group RRSPs offering a structured, realistic and effective vehicle for retirement savings.

The benefits to employees are numerous. A break on taxes is immediate instead of annually. The pooled or group nature means lower investment management fees, lower to no account fees, sales or redemption charges. There are also no minimum account thresholds to meet. And one of the biggest benefits many employers offer in their plans, is the matching component. These features add significant funds to employees’ savings over time. Clearly, there is incentive and advantage for employees to participate in their workplace group RRSP.

But what about the flip side? What’s in it for employers to sponsor group RRSPs rather than simply handing over an equivalent amount of money? More engaged employees for a start. Remember some of the statistics we mentioned at the outset? How one in three Canadians struggle with their finances, or how ever fewer employees contribute to an RRSP. These situations almost certainly cause stress in employees’ lives, and it probably impacts their work. Some research suggests as many as 22 per cent of employees are more engaged with their work when they’re financially prepared.

To be sure, these are strong incentives for employers but there’s another that is highly persuasive and arguably stronger. It has to do with branding. When employees open their statements they see a dollar amount saved for them by their employer and, well, that’s gold. It’s hard to underestimate the persuasive sound of clinking money each and every month.

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