Canadians aren’t taking full advantage of their workplace saving plans, which could leave them shortchanged in retirement, a new survey suggests.

It also says employees aren’t the only ones to blame.

The survey from MFS Investment Management Canada Ltd. says employers also have a responsibility to better educate plan members about the benefits of workplace programs, such as defined contribution pensions and deferred profit sharing.

MFS says 45 percent of plan members surveyed saw no added benefit to contributing to so-called capital accumulation plans (CAPs) beyond what is necessary to get the employee’s matching contribution. Only 10 per cent based their contribution decisions on how much they would need toreach their retirement goals.

MFS believes Canadian investors need more help to maximize the benefits of CAPs.

While about two-thirds said believe they’re responsible for making contributions and investing the right amount for retirement, 22 per cent said they “had no idea how best to diversify a CAP account,” the survey says.

“Our survey tells us plan members don’t understand the lineup that’s put in front of them,” says Bradley Hicks, managing director with MFS Investment Management Canada. “Plan sponsors/employers have a responsibility and an opportunity to shape a better outcome if they can get their employees to contribute more.”

Pension evolution

CAPs include plans such as group registered retirement savings plans (RRSPs), defined contribution pension plans, and group registered education savings plans.

More companies are promoting these workplace plans, sometimes in place of the defined benefit pension plans that are being phased out as companies try to put more of the onus for retirement savings on employees. Defined benefit plans offer guaranteed payouts, while defined contribution plan payouts depend on the performance of the investment.

There is also a growing debate in Canada about how to fund the next generation of retirees through government programs, particularly with the Baby Boom generation retiring en masse.

This spring, the federal government proposed a new hybrid program, called a Target Pension Plan , where the employer and employee would share the investment risk. It would have a targeted payout, but if the money wasn’t there both sides would decide how to manage it.

It’s a mix of the older defined benefit plans and the newer defined contribution plans.

Hicks says the key to any pension scheme is consistent contributions, and making investments that are diversified and with risk levels that reflect how close someone is to retirement.

Investment confusion

The MFS study says investors are also confused about some types of investments, including the hugely popular index funds.

“Seventy per cent of members surveyed incorrectly believed index funds are safer than the overall stock market,” the survey shows. Another 56 per cent believe they offer better returns than the stock market.

The survey also shows investors see CAP plans as more of a bank account than a retirement savings vehicles. Forty-five per cent think it’s a good idea to withdrawal from a CAP when they need cash. About two-thirds wished the process were easier to take out the money.

“These attitudes reflect short-term thinking and can result in actions that may seriously impact the account balance at retirement,” the study says.

MFS commissioned Research Collaborative to conduct the online survey of 1,001 defined contribution plan member in February. The respondents were between the ages of 20 and 69, with a job and at least $1,000 in a workplace savings plan.

Source: Yahoo! Finance