MFS survey highlights the importance of focusing on capital accumulation plan basics

CNW Group

TORONTO , July 9, 2014 /CNW/ - Many Canadian investors need additional guidance to maximize the benefits in their capital accumulation plans (CAPs), according to a recent survey from MFS Investment Management Canada Limited (MFS®). Nearly three-quarters of plan members surveyed (72 per cent) 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, more than one-fifth (22 per cent) of plan members 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 Investment Management Canada Limited. "Canadian employers and plan sponsors can play a pivotal role in helping members understand and maximize the benefits in their retirement savings programs."

The MFS 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."

More than half (56 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 Investment Management Canada Limited. "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 more than half (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. Nearly half of retirement savings plan members (45 per cent) 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. These attitudes reflect short-term thinking and can result in actions that may seriously impact the account balance at retirement.

"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."

About the survey
MFS, through Research Collaborative, an independent research firm, sponsored an online survey from February 4 to February 11, 2014 , 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. MFS was not identified as the research sponsor.  

About MFS Investment Management
Established in 1924, MFS is an active, global asset manager with investment offices in Boston , Hong Kong , London , Mexico City , São Paulo, Singapore , Sydney , Tokyo and Toronto . We employ a uniquely collaborative approach to build better insights for our clients. Our investment approach has three core elements: integrated research, global collaboration and active risk management. As of June 30, 2014 , MFS manages CAD$467.1 billion in assets on behalf of individual and institutional investors worldwide. Please visit for more information.

Issued in Canada by MFS Investment Management Canada Limited. No securities commission or similar regulatory authority in Canada has reviewed this communication.

SOURCE MFS Investment Management Canada Limited

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