Defined contribution pension plan members are overestimating the level of income their plan will provide in retirement, and many are not engaging in enough financial planning, speakers at a pension conference said on Tuesday.

Global professional services company Towers Watson released results of recent surveys at the Conference Board of Canada’s Summit on the Future of Pensions in Toronto.

A poll of plan members revealed a high level of confidence that their employer-sponsored plans would provide adequate retirement incomes. But in a survey of defined contribution pension plan sponsors, only 23% indicated that they were confident that their members had realistic expectations of what their pensions would provide in retirement.

Plan sponsors were also not confident that their members would have enough assets to support their goals in retirement.

“This is perhaps disconcerting,” said Michelle Loder, Canadian defined contribution business leader at Towers Watson, presenting the survey results.

Christopher Cartwright, vice-president of the Financial Education Institute of Canada, agreed that employees’ views are not in line with those of their employers. He works directly with plan participants, educating them on behalf of plan sponsors.

Cartwright finds that members are often overly dependent on their pension plans, and in most cases, haven’t generated enough of their own savings for retirement. Members tend to expect their employers to deliver on the pension promises they’ve made, regardless of market conditions.

“They tend to sometimes overestimate what they might get from their group program at work,” Cartwright said. “They kind of expect that the employer has some magic powers to override what’s going on in the marketplace.”

Many plan members are also failing to engage in enough of their own financial planning, the speakers said. Cartwright said many members that he works with don’t know how much they should be saving because they don’t have a financial plan.

Pension plan sponsors also expressed a lack of confidence in their members’ financial knowledge and capabilities, the Towers Watson survey showed. Low percentages survey respondents said they believe that their employees make informed decisions about their retirement savings and the investment of their retirement assets.

Only 15% of sponsors surveyed said they believe that most of their employees receive advice from an independent financial advisor.

The speakers said plan sponsors must do a better job of managing employees’ expectations, by communicating with them and educating them to ensure that they’re doing their own part to save for retirement.

“Make sure your members do have a retirement income goal, and it’s been thoughtfully considered,” Loder said, adding that it’s critical for plan participants to understand longevity risks as life expectancy continues to climb.

IE