Many Canadian investors need additional guidance to maximize the benefits in their capital accumulation plans (CAPs), according to a recent survey from Toronto-based MFS Investment Management Canada Ltd. (MFS Canada).

Seventy-two per cent of defined contribution pension plan members surveyed agreed that they were primarily responsible for determining how much they contribute to their plan and 73 per cent agreed that they were primarily responsible for investing appropriately based on their needs and goals. However, 22 per cent of plan members surveyed said they had no idea how best to diversify a CAP account.

“We have put a tremendous amount of responsibility in the hands of plan members, many of whom have little expertise in investing or retirement planning,” said Bradley Hicks, managing director with MFS Canada. “Canadian employers and plan sponsors can play a pivotal role in helping members understand and maximize the benefits in their retirement savings programs.”

The survey also revealed that 45 per cent of plan members believed that there was no added benefit to contributing more to a CAP than what is necessary to receive the employer’s matching contribution. Only 10 per cent based their contribution decisions on how much they would need to reach their retirement goals.

“With the ultimate goal being retirement readiness, CAP members should focus on the factors within their control, which include taking full advantage of their employer’s matching contributions and considering the feasibility of contributing more than the minimum,” said Hicks. “It’s important for investors to think about the type of lifestyle they want when they retire and ensure that they are saving enough to meet that expectation.”

Fifty-six per cent of those surveyed said that not contributing regularly could have a major negative impact on their CAP balance at retirement. However, 22 per cent reported that they had stopped contributing to their CAPs for reasons other than a job change. Furthermore, 42 per cent of survey participants said that it was not necessary to contribute to a CAP every year because they could always make up for it later.

“Consistent contributions are important, but members also need to focus on investing in an age-appropriate, well-diversified portfolio,” said Shawn Cohen, director, relationship management with MFS Canada. “Plan members often struggle with investment decisions, finding investment menus overly complicated and not fully understanding concepts such as diversification.”

The study also found that many investors do not have a clear understanding of index funds — one of the most popular retirement plan investment options. Seventy per cent of members surveyed incorrectly believed index funds are safer than the overall stock market, and 56 per cent believed index funds deliver better returns than the stock market.

With regards to diversification, 80 per cent of those surveyed said that having a little bit invested in each option in a CAP is the best way to diversify while only 13 per cent said that investing in a target date fund was an ideal way to achieve diversification.

Near-term needs are also having a negative impact on Canadian retirement plans. Forty-five per cent of those surveyed believe that taking a withdrawal from a CAP is a good option when you need money. Additionally, 62 per cent of members surveyed said they wished it was easier to access money in their CAPs today.

“The necessary ingredients for successful retirement outcomes already exist, but many members do not understand the basics of their workplace retirement plans,” said Cohen. “Making small changes in contribution amounts and avoiding premature withdrawals can have a big impact on the retirement outlook for Canadian investors.”

MFS Canada, through Research Collaborative, an independent research firm, sponsored an online survey from February 4 to 11 of 1,001 defined contribution plan members in Canada between the ages of 20 and 69 who are employed and have at least $1,000 balance in a plan with their current employer.