A new study by David Macdonald for the Canadian Centre for Policy Alternatives looks at how the high costs of mutual funds in RRSPs compared to the low cost of defined benefit pension plans could make retirement later for many. Here is part of the excecutive summary.
The primary vehicles Canadians have for managing their savings are pen-
sion plans and mutual funds, and in 2014 each held over $1 trillion in assets.
Over the past two decades, policy-makers have promoted Registered Retire-
ment Savings Plans (RRSPs) as the best option, with much of those personal
savings going into mutual funds. Traditional pension funds are in decline.
They covered 43% of workers in 1977 but now cover only 27%.
In 2014, weighted pension plan fees were 0.38% of assets while compar-
able mutual fund fees were 2.1%. In both cases, investors do not pay those
fees directly, nor do they have a choice in the matter. The fees are withdrawn
from their fund returns without the investor ever seeing the exact amount.
If the higher fees on mutual funds (2.1%) seem small, we must remem-
ber that compound interest can work against an investor as easily as it helps
them. Over a lifetime of contributions, the average mutual fund investor
will have to work until age 72 to accumulate the same amount as the pen-
sion plan holder had by age 65 due to this seemingly small fee difference.