The 20-per-cent pension participation rate for Canadian private sector workers is much lower than the rates in other developed economies in the European Union, the U.K., Australia and New Zealand.Nathan Denette/The Canadian Press
Keith Ambachtsheer is director emeritus of the International Centre for Pension Management and Executive in Residence at the Rotman School of Management, University of Toronto.
According to Statistics Canada data, 87 per cent of public sector workers have a workplace pension plan, versus a shockingly low 20 per cent for private sector workers.
Compare that to 1976 numbers. Back then, 76 per cent of public sector workers had a workplace pension, while 29 per cent of private sector workers had one. Today’s numbers follow a trend of increasing participation for public sector workers and declining participation for private sector workers.
This disparity was earlier pointed out in The Globe by the actuary Frederick Vettese. He wrote that even though overall numbers of pension plan members increased to 7.2 million in 2023, the actual figures are not so rosy. Evidently, those increases had come mostly from the public sector.
Without workplace plan membership, private sector workers are left to fend for themselves in the complex world of pension finance and investing. As a result, many under-save and overpay for the financial services they receive.
This 20-per-cent participation rate for private sector workers is much lower than the rates in other developed economies in the European Union, the U.K., Australia and New Zealand. Why are most private sector workers in these countries members of workplace pension plans? Because employers are required to enrol their employees in a qualifying workplace pension plan. Such a plan might be sponsored by the employer itself, or more likely, by a union, an industry group or a government pension agency.
Canada’s pension coverage problem can be fixed by similarly requiring employers to enrol their workers in a qualifying workplace pension plan.
This first requires defining the attributes of “qualifying.” To be effective, such plans should have the same three attributes that have made Canada’s public sector plans the envy of the pension world: “arm’s length”, well-governed and large-scaled for cost-effectiveness.
This requirement raises an obvious question for Canada: Why not open up our world-class public sector workplace pension plans to private sector workers? Fortunately, the leadership of Ontario’s Colleges of Applied Arts and Technology (CAAT) Pension Plan answered this question in the affirmative over a decade ago.
It began offering its DBplus pension option to private sector employers in 2018. (CAAT now includes employees of The Globe and Mail as members.) DBplus provides a lifetime pension at a fixed contribution rate. To date, 704 private sector employers employing 60,400 workers have signed on for DBplus. The plan is 124-per-cent funded. This outside group is now considerably larger than CAAT’s own 45 college employers employing 27,800 people.
Thus there are no good technical reasons for 80 per cent of Canada’s private sector work force to not be a member of a well-designed and managed workplace pension plan. These plans already exist, and they can be adapted to meet private sector needs. What has been missing is the creativity, urgency and leadership needed to make it happen at scale. Let’s get on with it.