Insurance companies offer the best group retirement plans
Insurance companies really understand products for a mass group of people. They have been in the benefit business the longest and the Group RRSP or Pension is simply a natural extension of the life, health and dental benefits they provide.
Low fees and no loads
Insurance companies have very competitive plans where there is no front or back end loading like the mutual fund industry. Their plans are usually “no-load” and they have much lower management fees in their group offerings than the mutual fund companies and even the banks.
Does size make a difference?
There are four main companies that administer group RRSP plans: insurance companies, mutual fund companies, banks and self-directed trustees. The biggest players in the group RRSP market are the insurance companies as they have been doing it the longest.
Combined, Sun Life, Great West Life, Standard Life and Manulife have over 70% of the total market share. The insurance cos are also key players in the non-financial group benefit market. Each group and strengths and weaknesses so choose wisely.
Broad investment options including guarantees
Because they have been at this so long, insurance cos offer a wide range of investment options including low fee passive index options, socially responsible options, target date funds and guaranteed segregated options. While banks and mutual fund companies also have a wide range, not all financial institutions offer guaranteed options.
Website and administration
Because of the size and market share dominance of these insurance companies, they really have the support systems necessary to serve a large group of members. If you think about it, the biggest employers all use one of the big four insurance players for their Group RRSP, Defined Contribution Pension or Defined Benefit Pension plan. Their dominance has given them the edge when it comes to web access and education for both the members and the employers.
Comments
Hi Jim,
A bit late in commenting here, and I think you and I have disagreed on this before. How is it you believe that MER’s of 2 to 2 1/2 % (GWL group plan at my work 75 employee’s) could be considered low fee / low load? I still think it’s robbery.
Hey Paul, I don’t think we disagree at all. Group plans are supposed to give you lower IMFs and if you are not getting lower IMFs, you should talk to your employer.
2 to 2.5% is high. that being said, I know of many plan with similar number of employees that have IMFs well under 2%.
Every plan is different. If there is a broker on the plan, they may be charging higher commissions which drives the IMFs up.
Jim,
Do you know the history of when mutual fund companies exited this business and who they sold to?
Thanks,
Iassen
Hi Jim,
Saskatchewan Pension Plan offers a Business Pension Plan with an average of 1% fees for professional management of contributions. There is no cost to join, and no fees for changes, stops, starts etc. SPP was created for anyone in Canada, age 18 – 71 with RRSP room. There is a $2500/year limit and you can transfer up to $10,000 per year from an existing RRSP. SPP is a great pension plan option for business – and a great addition to anyones retirement savings strategy.
I have worked for both the US and Canadian branches of my company. Both had under 200 employees when I worked there. In Canada, we have Manulife, which offers Fidelity target-date funds with 1.6% IMF. In the US, we have Great West, which offers Vanguard target-date funds with a 0.15% management fee.
This is not like other Canada/US comparisons where Canadians pay triple price for cheese and a bit more for most imported household goods. This is a much, much greater drain on Canadian finances.
The fact that Canada’s economy is smaller than the US economy is irrelevant. The UK economy is only a bit larger than Canada’s and their public pension plan (with zero competition) manages their pensions for only about 0.5%. Australia’s economy is smaller than Canada’s but their fees average about 0.9%. Per the OECD, the far smaller economies of Austria, Korea, and Hungary, all charge far lower fees (0.5%, 0.7%, and 0.8% average) for their direct contribution plans.
Why do Canadians willingly hand so many billions of dollars to oligopolist banks and insurance companies?