Saving for retirement isn't a top priority for many young professionals, but Great-West Lifeco Inc. thinks it can change that by addressing heavy student debt loads.
The life and health insurer is rolling out a new program to its client companies that will allow eligible employees to pay off their student debt while also getting some of the benefits of contributing to a workplace pension plan. As the loans are repaid, employers will provide matched contributions to pension plans managed by Great-West. This gets young people to save for retirement sooner and provides them with a perk they may perceive as more valuable at this stage of their life.
The goal is to court millennials who are entering the work force consumed with more immediate concerns than how to fund their future retirement. These financial pressures may include plans for buying a home, travelling, impending nuptials and tackling debt. Companies are seeking more flexible and customizable benefit plans for the assorted needs of their employees, and insurance company providers have been looking for ways to stand out.
"We were asking them the question, for plan sponsors, how can we help you engage with this particular demographic? Because many employers are struggling with how to resonate their employer offerings for them," said Stefan Kristjanson, president of Great-West's Canadian business. "So, our solution is one response to help employers in particular with this group of millennials that have higher levels of debt than previous generations."
Great-West's research showed that the problem of lingering federal and provincial government student loans affects more that 270,000 of its current plan members within group pension accounts. Of the Canadian students that graduate with debt, the average amount for bachelor and masters degrees is more than $26,000, according to the most recent Statistics Canada data from 2010. Other more recent reports, such as those by the Canadian Federation of Students, place that figure a few thousand dollars higher.
The Winnipeg-based company plans to introduce this program starting in 2018 through select employers that offer its group retirement and savings plans. Within the next five years, the company projects the program could contribute $300-million in additional assets under management.
It's the latest example of insurers taking a more targeted approach to addressing specific needs of unique client groups, as opposed to the one-size-fits-all programs of the past.
"Different demographics have such unique needs relative to, perhaps, historical times. The millennial has a very different need than a baby boomer," Mr. Kristjanson says, adding that this strategy to address the financial, physical and mental well-being of individuals – often called a holistic approach, in industry parlance – is what clients are increasingly asking for. "It's more in demand now," he said.
Even within the millennial segment, the student-debt solution is relatively targeted. Only about half of Canadian graduates come out of school with any government or other student loans, according to government and other independent data.
For the insurer, the issue of student debt represents both an immediate business opportunity, but also the potential to convert young people into loyal customers.
"We do look to create lifelong relationships with these people, once we've created a trusted relationship," Mr. Kristjanson said. "To me, this is a lot about financial literacy as well. It is one of the things we're trying to address in Canada. To us, this is a good program to help accelerate the good discipline of saving."
Great-West believes this is the first program of its kind in Canada and is considering it a pilot project at the moment. Mr. Kristjanson expects that the student-loan program will undergo some adjustments through focus groups and interviews with plan sponsors as it's rolled out to large employers across Canada. If the effort proves successful, the company may consider how the idea could be applied to its U.S. and European business units.