On Christoph's point of “encouraging people to save more”, there are many possible design options we could put in place within our current plan that would “nudge” people in that direction, without sacrificing flexibility and choice.
Chief among them are auto-enrollment, auto-REenrollment, and auto-escalation.
Auto-enrollment would default every new member to an x% employee contribution. If the member could not or did not want to make this contribution, they could simply opt out.
Under auto-REenrollment, the plan would pop members back up to an x% employee contribution every 5 (or 7, or 10) years. Members could, again, opt-out if it (still) doesn’t work for them.
Auto-escalation would default members to increasing their contribution rate by a percent or two at regular intervals (say every 5 years). Again, the member could opt out and put their contribution back at whatever they want (even
back to no contribution, if that’s what they need).
All of these features have been shown to be effective in getting people to save more . Our current plan has a 0% default so it actually “nudges” us to save nothing.
Note that NONE of the options I outlined above would require us to make the employer’s contribution contingent on our contributions (so not “matching", like Derek suggested) and none of them would “force” us to do something that
doesn’t work for us. They would simply take advantage of behavioural economics to get the best result possible. This is what a “smart” DC plan looks like. As a former pension consultant, it baffles me why we don’t have these features in our plan, especially
when they literally cost nothing.
Barbara
Barbara Sanders, FSA, FCIA
Associate Professor | Statistics & Actuarial Science
Simon Fraser University | Burnaby Campus
8888 University Dr., Burnaby, B.C. V5A 1S6
T: 778.782.9074 | M: 778.689.7564
From: Christoph Luelfesmann <cluelfes@sfu.ca>
Date: Wednesday, November 14, 2018 at 1:23 PM
To: Tamon Stephen <tamon@sfu.ca>, academic-discussion <academic-discussion@sfu.ca>
Subject: Re: Pensions vs. Mortgages
Date: Wednesday, November 14, 2018 at 1:23 PM
To: Tamon Stephen <tamon@sfu.ca>, academic-discussion <academic-discussion@sfu.ca>
Subject: Re: Pensions vs. Mortgages
Hello Tamon (and all),
just to clarify: Making private RRSP contributions madatory (to 'max
out' contribution room) would take away options from each of us --
namely, to contribute less or even nothing. Taking away these options
can therefore logically never benefit anyone of us. So you are right to
consider my suggestion off in this sense.
However, what SFUFA aims for with its DB proposal is -- at least to
some substantial degree -- reacting to the perceived problem that many
members do not save enough during their active years and therefore, reap
meagre pensions.