It's Your Money  

Say yes to free money

A surprisingly high number of Canadians are giving up free money.

Not just a little bit of free money either, we’re talking billions of dollars per year.

These individuals are ones that are either not fully contributing or not contributing at all to their company’s defined-contribution (DC) pension plan. By not contributing, they’re passing up matching contributions from their employer.

DC pension plans (as well as group RRSP plans) are typically funded by a combination of employer and employee contributions. Most plans provide “dollar for dollar” matching up to a prescribed limit.

For example, an employer may provide an employee even matching up to $10,000 per year or eight per cent of their annual salary.

Take a second to think about the math here – if you put $10,000 into your plan each year, your employer puts an additional $10,000 in, which means you get a 100 per cent return on your investments.

Yet, there are still far too many people passing up on this benefit.

Insurance company Sun Life Financial, the largest provider of group retirement services in Canada, administers more than 7,900 group plans that cover 980,000 members.

They recently took a look at the DC pension plans they administer to see just how much money is being passed up on and estimated the total to be somewhere between $3-$4 billion a year.

If we could total up the amount of money being passed up on annually from all of the other DC plan providers nationwide, it would be a far more staggering sum.

Participation rates in group savings plans tend to be in the 60% range and 20-25% of those who do take part are not making their maximum allowable contributions.   

Many people not contributing will cite the lack of cash flow at the end of each month as their primary reason for not participating and they can’t stand the thought of any more money being deducted from their monthly paycheques.

But are they really stopping to think about the alternative? Reaching retirement age without enough money saved up is a fate that is becoming more and more common.

If you find yourself not fully participating in your own company’s DC or group RRSP plan, consider sitting down with a certified financial planner professional to re-evaluate your monthly cash flow and find a way to make it work.

Still not convinced?

Then consider your company’s contribution matching as a raise to your salary. Would you really say no to a raise?

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About the Author

Brett, designated as a chartered investment manager and certified financial planner, is the regional director (Okanagan) for IG Wealth Management.

In addition to his “day job," Brett was appointed to the board of directors of FP Canada (formerly FPSC) in 2014, named as the board’s vice-chair in 2017 and will take over as board chairman in June. 

Brett has been writing a weekly financial planning column since 2012 and provides his readers with easy to understand explanations for the complex financial challenges that they face in every stage of life.

Enhancing the financial literacy of Canadian consumers is a top priority of Brett’s and his ongoing efforts as a finance writer and on the regulatory side through the FP Canada board focus on this initiative.   

Please let Brett know if you have any topics that you’d like him to cover in future columns by emailing him at [email protected].

The views expressed are strictly those of the author and not necessarily those of Castanet. Castanet does not warrant the contents.

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