Prospect of "Freedom Sixty-Eight" Increases Focus on Personal Finances

Facing longer working years, Canadians look for improvement in employer retirement communication and planning tools

TORONTO, Dec. 4, 2012 /CNW/ - Global professional services company Towers Watson today issued its latest Defined Contribution (DC) Retirement Age Index (the 'Index') which shows the effect of changes in capital market returns and annuity purchase prices on the potential retirement age of a Canadian worker in a benchmark DC plan. According to the Index, securing a comfortable retirement is going to take Canadian workers more time to achieve.

Today, if a 60-year old DC plan member  wanted to match the retirement benefits of a benchmark DC member who retired at age 60 at the end of 2007, after 20 years of contributing, this plan member would need to work until the age of 68 and a half —  a remarkable extra eight and a half years. Michelle Loder, Canadian DC Business Leader at Towers Watson said, "From a retirement planning perspective, the Index results really demonstrate the risks that DC plan members face in trying to juggle long-term investment assumptions with what we call "end point sensitivity."

End point sensitivity refers to the impact that the timing of a decision to retire can have on the funds available in retirement due to changes in both investment returns and annuity prices. According to data in the Index, the benchmark plan member who contributed to the plan for 20 years and retired at age 60 at December 31, 2007 experienced an annualized average investment return of 7.2%.  In contrast, a plan member with the same length of contribution history, but who retired on September 30, 2012, experienced an average return of 6.3%. As Loder notes, "0.9% may not sound like much, but it actually can translate into tens of thousands of dollars that will not be available to the second plan member to secure in retirement income through an annuity. That means the plan member needs to work longer to make up the difference, contribute more during that delay, or be satisfied with less income than their counterpart who retired in 2007."

John McIntosh, Towers Watson's Canadian Plan Design Issue Leader added, "DC plan members need to keep a long-term focus, and periodically review and adjust their levels of contribution and investment choices — or they may find themselves unpleasantly surprised."

Help Wanted With Defined Contribution Retirement Planning

As employer-sponsored DC plans play an increasingly important role in the retirement future of Canadian workers, findings from Towers Watson's Retirement Attitudes Survey show that a majority of employees see room for improvement in their employer's retirement communication and planning tools. Overall, less than 40% of responding workers think their employers are doing a good job of providing retirement tools and information.  For employees nearing retirement (age 50 plus), the number decreases to 30%.

McIntosh said, "In uncertain economic times it is especially important for employers to provide DC plan members with better education and planning tools, to help them manage their retirement savings and to set and achieve reasonable expectations. Our research shows that employees value — and are therefore likely to use — personalized outreach such as face-to-face meetings and seminars, independent financial advice and personalized on-line modeling tools that reflect their specific pension benefits."

Canadian employers, however, have been slow to respond to the request for help, citing cost considerations or plan design restrictions. But, as McIntosh said, "Without providing education and the necessary tools, employers run the risk of having more 'hidden pensioners' — retirement-ready employees who are working out of necessity rather than by choice. Employers need to find a balance between managing plan costs and the risk of employees not being able to retire."

About the Towers Watson DC Retirement Age Index
The Towers Watson DC Retirement Age Index tracks the effect on retirement ages of members in a defined contribution (DC) pension plan as a result of changes in capital market returns and annuity purchase prices, assuming that plan members are seeking a specific level of income replacement at retirement. The benchmark retiree is a 60-year old member who retired in December 2007, after 20 years of contributing a consistent annual percent of pay into the plan, with those contributions having been invested in a balanced fund (half in equities and half in bonds). That benchmark retiree's pension amount (as a percentage of final pay) is set as the target for later retirees who would have the same 20-year contribution history and asset mix. If investment performance over a particular member's 20-year history is worse (or if annuity purchase prices at retirement are higher) than those our benchmark retiree had experienced, this member must delay retirement in order to achieve the same pension as the benchmark retiree. The DC Retirement Age Index tracks the delayed retirement age anticipated, assuming that the member makes no further contributions from age 60 until eventual retirement. To accelerate the ultimate retirement age, a plan member would be required to continue making contributions beyond age 60.

About Towers Watson
Towers Watson (NYSE, NASDAQ: TW) is a leading global professional services company that helps organizations improve performance through effective people, risk and financial management. The company offers solutions in the areas of benefits, talent management, rewards, and risk and capital management. Towers Watson has 14,000 associates around the world and is located on the web at

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SOURCE: Towers Watson

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