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RRSP Season

Pension shift leaves Canadians exposed Add to ...

Canadians are focusing on salary and flexible work arrangements and not placing enough importance on the quality of a potential employer’s pension plan when deciding where to work, says a new report.

The study, which explores the shift in Canadian pensions from the traditional defined-benefit model to the defined-contribution model, was released Tuesday by Bank of Montreal.

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Canadian companies have been steadily abandoning the higher-quality defined-benefit plans, which are still common in the public sector. They set out a specific pension amount that an employee will receive when they retire, regardless of how the markets perform.

A defined-contribution plans does not pay a guaranteed amount at retirement, but instead pays a return that varies based on the performance of the investments held by each member of the plan. It moves the responsibility of saving for retirement - and properly managing one’s pension - from the employer to the employee.

Despite the fact that fewer Canadians can rely on a defined-benefit pension plan to secure their retirement income, the BMO report found that Canadian employees are not placing a high priority on a good retirement pension when evaluating job opportunities.

It noted that in a survey the BMO Retirement Institute conducted in December, 2011, just 7 per cent of those polled said they considered a good retirement pension to be the most important factor when considering where to work. That compares with 47 per cent who said salary was most important and 22 per cent who cited flexible work arrangements.

Only 9 per cent of respondents said it was very likely they would leave their current position for another one if the new employer offered a better workplace pension/savings plan. And more than half of those polled could not identify the must-have features they would include if given the opportunity to design their own workplace pension plan.

“Younger Canadians who are seeking employment should consider the advantages of working for organizations that offer defined-benefit pension plans,” says Tina Di Vito, the head of BMO’s Retirement Institute and the author of 52 Ways to Wreck Your Retirement.

A defined-benefit plan will provide them with retirement income that is independent of market performance, she added, noting that some of the better-quality plans can provide a relatively high retirement income, often 60 to 80 per cent of their annual salary once they reach the 30- to 40-year range in employment service.

For the many Canadians who are relying on defined-contribution pension plan, Ms. Di Vito says that it can be a valuable tool, when managed correctly. The problem, she says, is that most people to not have the time or investment knowledge to actively manage their own plan.

For Canadians in a defined-contribution plan, Ms. Di Vito has these tips:

Educate yourself If your employer offers a pension plan, familiarize yourself with the plan. If you already partake in a pension plan, take the time to understand how the plan works, including its various options and details.

Take advantage Take full advantage of your workplace pension plan, including any employee matching programs offered, and auto features such as automatic enrolment and auto-escalation. However, ensure that you continue to stay actively involved.

Diversify your retirement savings A pension plan should not be the only retirement vehicle you have. A Registered Retirement Savings Plan (RRSP) is an equally important investment tool that can help you save for retirement. RRSPs are especially effective for self-employed individuals who do not receive a workplace pension.

Talk to an expert Unlike defined-benefit plans, defined-contribution plans require individuals to make investment decisions on their own. For well-informed decisions, it is best to talk to a financial professional who can provide guidance on how to fit such a pension plan into your overall retirement plan.



For tips, stories, videos and live chats ahead of this year's RRSP contribution deadline, check the Globe Investor 2012 RRSP season section for daily updates.

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