The Growing Pension Divide in Canada
While Canada maintains a respectable position on the Global Pension Index, a significant vulnerability threatens the retirement security of millions of citizens. The most pressing issue identified by experts is the alarming number of Canadian workers who lack access to workplace retirement plans, particularly those employed in the private sector.
A Stark Coverage Disparity
Recent research from the C.D. Howe Institute reveals that more than nine million Canadian employees work without the benefit of a workplace pension plan. This number becomes even more concerning when considering the additional 2.7 million self-employed Canadians who also lack formal retirement coverage through their work.
The coverage gap between public and private sector workers is particularly striking. While 87 percent of public sector employees participate in registered pension plans, only 37 percent of private sector workers enjoy similar retirement benefits. This disparity has been widening as private sector coverage increasingly shifts from defined benefit plans to defined contribution arrangements.
"The post-work financial security gap between public-sector and private-sector workers has been growing," states the report from the C.D. Howe Institute.
The Small Business Challenge
The pension coverage problem is especially acute among small and medium-sized enterprises. Only about 19 percent of Canadian businesses with five to 499 employees provide pension plans, compared to approximately 50 percent of similarly sized American companies. According to a 2024 survey by the Healthcare of Ontario Pension Plan, cost remains the primary barrier preventing businesses from offering these crucial retirement benefits.
Keith Ambachtsheer, director emeritus of the International Centre for Pension Management at the Rotman School of Management, and Common Wealth CEO Alex Mazer, co-authors of the report, emphasize the scale of the problem: "Even assuming the broadest definition of private-sector pension coverage, it still means that a very large number of Canadians are not covered by a workplace retirement plan of any kind."
International Comparisons and Proposed Solutions
Several countries have taken more aggressive approaches to pension coverage. Australia, the United Kingdom, and most recently Quebec have implemented requirements for employers to enroll employees in workplace pension plans. While other Canadian jurisdictions may eventually follow this lead, the current challenging economic environment makes mandatory benefits a difficult proposition.
Instead of a regulatory mandate, the report recommends a "carrot approach" from the federal government. The proposed Small Employer Retirement Plan Tax Credit would provide businesses with tax relief for establishing workplace plans. This initiative would include credits for setup expenses and cover 50 percent of employer contributions for workers earning $50,000 annually, and 25 percent for those earning $100,000, for up to three years.
At an estimated cost of up to $2 billion over five years, this tax credit could expand pension coverage to between 125,000 and 500,000 additional Canadians while reducing the cost burden on businesses by nearly half.
The Critical Importance of Workplace Pensions
Multiple studies underscore the vital role workplace pension plans play in retirement security. Research consistently shows that households without workplace pension coverage face significantly greater challenges in maintaining their standard of living during retirement years. A retirement income calculator developed last year confirmed that those lacking workplace pension plans are less likely to preserve their pre-retirement lifestyle.
As Canada's population continues to age, addressing this pension coverage gap becomes increasingly urgent. The growing divide between public and private sector retirement security represents not just an individual financial concern but a broader societal challenge that requires innovative policy solutions and collaborative efforts between government, businesses, and financial institutions.
