Only 37.5 per cent of Canadians are covered by a workplace pension plan, according to the latest Statistics Canada data.akinbostanci/iStockPhoto / Getty Images
This is the first article in a new Globe Advisor series, Pensions Unpacked, exploring how workplace pensions fit into retirement strategies, and the technical details and decisions that come with the plans.
Most Canadian employees rely on three main sources of income to fund their retirement: the Canada Pension Plan (CPP) or Quebec Pension Plan (QPP), workplace-sponsored pensions and personal savings.
For most, CPP benefits alone aren’t enough to retire comfortably. The maximum annual CPP pension is about $17,200 (before taxes) for someone turning 65 in 2025, and only about 6 per cent of Canadians qualify for the maximum.
Personal savings may also not help many retirees make ends meet. About 42 per cent of Canadians may have to rely on the sale of their home to set themselves up for retirement, according to the 2024 Canadian Retirement Survey from Abacus Data, commissioned by the Healthcare of Ontario Pension Plan.
That leaves workplace-sponsored pensions as a critical piece of the retirement income puzzle. According to the latest Statistics Canada data, only 37.5 per cent of Canadians are covered by a workplace pension plan. However, unlike the CPP benefits, many workplace pensions – except the increasingly rare defined-benefit (DB) plans – don’t come with guaranteed income.
In a DB plan, mostly found in the public sector, an employer promises to pay its workers a regular income in retirement. Other workplace pensions are based on how the investment performs. That includes target-benefit plans, which are DB-like plans with adjustable benefits often sponsored by unions; defined-contribution (DC) plans, in which the employee and employer pay a defined amount into the plan; group registered retirement savings plans (RRSP), in which employees contribute through regular deductions from their pay (and the employer may or may not chip in); and asset-share plans, such as the variable payment life annuity (VPLA), which allows an employee to exchange funds in return for a variable income payable for life.
In an informal Globe and Mail survey conducted in November, which included 285 participants (the vast majority, 84 per cent, were 45 and older), 93 per cent said they’re a member of at least one workplace pension plan from a current or previous employer.
Of those who have a workplace pension, 81 per cent said they have one workplace pension, 17 per cent have two and 2 per cent have three. Eighty-two per cent of survey participants have a DB plan, 17 per cent have a DC plan, and 7 per cent have both.
Furthermore, 71 per cent said a workplace pension (combined with CPP/QPP benefits) is their primary or expected source of retirement income.
Almost 85 per cent of participants said they choose an employer based on the company’s pension plan.
“I will not change my employment anymore to keep my pension,” one reader said.
“It’s the main reason I have stayed with my employer despite being very underpaid,” wrote another.
Some said their salaries were lower in the public sector than in the private sector, but they believe the security of a DB pension has made a huge difference in their retirement lifestyle.
“Maximum RRSP contributions due to the pension adjustment are lower, but the advent of TFSAs has helped generate more retirement savings,” one reader wrote. “Knowing my retirement planning included a full pension was beneficial in fully funding children’s RESPs and paying off the mortgage.”
Some with a DC plan expressed regret at not being more aggressive with their chosen investments when they were younger.
“I was more risk-averse earlier in my career on funds chosen in my DC plans and have learned the hard way that this likely led to lower or eroded savings,” one reader wrote, adding that decumulation is still something they need to figure out.
Pension experts say decumulation is a big problem for retirees without DB plans.
“There’s a lot of support in DC plans for the saving part of the journey, but there needs to be more support during the decumulation stage,” says Barbara Sanders, an associate professor at Simon Fraser University.
Doug Chandler, an actuary and associate fellow at the National Institute on Ageing (NIA) at Toronto Metropolitan University, argues DC plans aren’t pensions at all but instead pots of money similar to RRSPs and registered retirement income funds that are more suitable for non-routine spending than as a source of regular, lifelong income.
As pension risk shifts to plan members, Mr. Chandler and other pension experts are calling for more risk-sharing between employers, employees and pensioners.
A recent NIA paper says financial advisors are well-positioned to help workers understand the roles pensions and pots of money play in their retirement plans. However, governments, professional organizations, financial institutions and other agencies could also help workers transition to a “decumulation mindset” in retirement.
These are the issues that will shape our series, Pensions Unpacked, over the coming weeks. We’ll dig into several topics, from survivor benefits to managing foreign pensions to deciding whether to commute a pension. Look for new articles every Tuesday.
We may add topics to this ongoing series. If you have pension story suggestions or feedback on the series, please leave a comment in the stories or e-mail us at: PensionsUnpacked@gmail.com.