Aon outlines key principles in CAP savings plans

A number of steps need to be taken to help clients tackle the challenges that come with the growing reliance on Capital Accumulation Plan (CAP) savings, says international insurance and pension management firm Aon. 

In the first in a series of papers, Aon says the key principles when designing a CAP include smart design, smart management and smart governance. 

It notes that the shift of risk from the employer and/or government to individual members, along with low savings rates, a lack of member engagement and/or understanding, and the impact of increasing longevity on retirement planning all stand as hurdles that need to be carefully managed.  

CAPs must be clearly defined 

Aon said the first step in designing a workplace CAP is to set up a clear definition and understanding of the plan’s purpose and alignment with corporate philosophy. 

It must also support employees’ financial and overall wellbeing with a program that is customized, flexible, and tax efficient, with a clear focus on savings. 

The plan that is eventually adopted by a company should also promote personal engagement with a view to providing long-term outcomes that meet individuals’ current financial and retirement needs; make it easy for members to maximize their savings and understand how saving early will improve their outcome at retirement. The plan should also maximize any tax relief and/or government incentives available. 

CAPs should offer flexibility and choice 

Plans should offer choice and flexibility to empower individuals through a full range of retirement solutions, said Aon. Choices should be presented in a way that employees can easily relate to and understand and be supported by a structured decision-making framework which should not only help employees make smart financial decisions about their savings but also promote financial literacy. This will ensure they are able to make smarter day-to-day financial decisions and therefore are more likely to be able to afford to make personal contributions.

One size does not fit all, therefore CAP plans should offer choice and flexibility to empower individuals through a concise outcomes-focused investment menu, flexible contribution options and a full range of retirement solutions, said Aon.