Those days are long gone. The number of Canadians covered by some form of pension-savings program at work—from the gold standard of defined benefit (DB) plans to the more recent shared-risk model of group RRSPs—has been in steady decline for decades.
Where did all the employer pension plans go?
Workplace pension plans are in decline as employers wrestle with costs, investment risk (in the case of DB pensions) and the trend toward greater reliance on contract workers. In the 30 years between 1989 and 2019, the percentage of total Canadian employees covered by registered pension plans fell from 43% to 37%, according to the federal Office of the Superintendent of Financial Institutions (OSFI).
That rate of erosion is cause for concern. But it gets worse when you drill down into the data. The continued prevalence of DB pension plans in the public sector masks a significant—and deeply worrying—trend in the private sector. Many employers have converted their DB plans to a defined contribution (DC), hybrid or other type of plan that carries less risk for themselves and more uncertainty for employees. Between 1989 and 2019, the number of people enrolled in DB programs cratered, falling from 85% to 39%, and participation in DC plans also dropped, from 30% to 17%. (Read about the differences between DB and DC pension plans.)
“The retirement landscape has changed,” says Michael Kovacs, chief executive officer of Harvest Portfolio Group. “For many, traditional retirement planning relied on receiving income from a pension or withdrawing from a fixed amount of capital savings. Those would be supplemented by Canada Pension Plan and Old Age Security payments and fixed assets like bonds and GICs. It’s not like that anymore.”
The challenge for Canadians, Kovacs continues, is to find ways to generate income from their retirement savings. This is especially important as life expectancy increases among Canadians and retirees face a greater need to conserve—even grow—capital over more years.
Replacing pensions with savings and investments
On the upside, the decline in pension coverage has been somewhat offset by increased opportunities to save and invest on a tax-deferred and even tax-free basis. In 1990, as the decline in pension coverage was taking hold, the federal government increased the maximum annual contribution to registered retirement savings plans (RRSPs) from 10% to 18%. Meanwhile, old caps on maximum contributions were indexed to annual wage increases so that individuals could save more as their incomes increased. In 2023, the maximum contribution stands at more than $30,000.
Rules have also been relaxed on holding non-Canadian investments inside RRSPs and, in 2009, the federal government created the tax-free savings account (TFSA), which provides an excellent opportunity to grow wealth on a tax-free basis. Withdrawals are tax-free, too.
But these opportunities to save and invest are not a panacea. Retirement planning is a multi-faceted issue shaped by many forces. Employers, for example, are increasingly relying on contract or gig workers to meet their staffing requirements. (A 2021 survey by the human resources firm Ceridian found that almost two-thirds of expected freelance or gig workers would substantially replace full-time employers in the next five years.) That means fewer Canadians are receiving employer benefits such as RRSP matching.
Cooper Langford
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