The total assets in Canadian workplace registered pension plans exceeded $2.1-trillion in 2024.sorbetto/iStockPhoto / Getty Images
Since the 1960s, Canada’s retirement system has often been compared to a three-legged stool.
The first leg is government-sponsored pension plans, including the Canada/Quebec Pension Plan, Old Age Security and the Guaranteed Income Supplement. The second leg consists of registered retirement arrangements which are controlled by individuals, primarily RRSPs and TFSAs. Finally, there are workplace pension plans.
It is this third leg that has failed most Canadians. To see why, we will look more closely at workplace pension assets.
The total assets in Canadian workplace registered pension plans exceeded $2.1-trillion in 2024. This figure is so large as to be barely comprehensible. To put it into perspective, let us assume this amount was divided between the public and private sectors and then allocated uniformly across all people in the labour force.
The result is shown in the chart for “Labour force only” and shows that each public-sector worker would have pension assets of $385,000 in 2024 versus $26,000 for each private-sector worker.
Of course, we shouldn’t ignore current retirees since much of the assets are earmarked for them. If we include them as well, then the amount of assets per person would be about $294,000 per public-sector worker and retiree versus $19,900 per private-sector worker and retiree. This is labelled in the chart as “Everyone 20 and over.”
When you consider the imbalance between public and private sectors, it is hard to believe this is what the original architects of Canada’s three-legged pension system had in mind.
There will be many objections to this chart. First off, some might say you can’t simply divide total pension assets by the total number of people, since some of those people are not even members of a pension plan.
In any event, I’m dividing in the same way for the public and private sectors and the drastic difference between them is telling.
Second, public-sector employees are contributing large amounts of their own pay to their workplace pensions, sometimes more than 10 per cent of pay. Their employers are contributing at least as much and in many cases more. (That public-employer money is, of course, coming from taxpayers, most of whom have no pension coverage at all.)
Third, the supporters of public-sector plans will point out that there is nothing to stop the private sector from having comparable plans of their own. This assertion, however, is assuredly false.
Generous defined-benefit (DB) pension plans have nearly died in the private sector because employers learned that trying to fund these plans could jeopardize the very existence of their organizations.
Many private-sector companies operate on thin margins that make even modest contributions to pension plans a challenge. This is especially true now that the CPP and QPP have raised contribution rates.
Finally, some objectors will point to the second leg of the pension stool, RRSPs. Total assets in RRSPs exceed assets in workplace pension plans. If you include RRSPs, then total retirement assets in the private sector would be closer to $120,000 per person. (Public-sector assets per person would also be higher, by the way.)
This last argument is a two-edged sword. If you conclude that private-sector workers are doing just fine overall thanks to second leg of the pension stool, then why have workplace pensions at all?
On the other hand, if you still believe that workplace plans are essential, then shouldn’t we consider a more equitable arrangement where employers contribute the same percentage of pay for all workers – public or private? The money could go into a super-RRSP with professional investment management.
Frederick Vettese is former chief actuary of Morneau Shepell and author of the PERC retirement calculator.
