What more can we do to convince people to save for retirement? The answer is nothing.
It’s unrealistic to expect households ground down by years of high interest rates and inflation to get more serious about retirement saving, even if it’s imperative that they do so. Maybe workplace pensions can help.
A little more than six in 10 employees are not covered by a pension, so there’s a lot of work to be done in having pensions play a bigger role. But recent developments in the pension world suggest it’s possible. Pension plans are getting smarter about engaging workers, and the number of people covered by these plans is increasing.
The best way to help the most people consistently save for retirement is to have a bit of each paycheque diverted into a pension plan, ideally with a matching employer contribution. But the pension narrative in Canada is full of negativity. Beyond the majority of workers not covered by pensions is the steady decline in the number of plans.
Defined-benefit pensions are the gold standard because they offer fixed or, sometimes, inflation-adjusted payments for life based on your time spent with a company and salary. Statistics Canada says the number of DB pensions fell to 8,672 in 2022 from 9,341 in 2018, yet the number of workers covered by these plans increased to 4.6 million from 4.2 million.
The explanation for the decline in the population of DB pensions is that companies are increasingly merging their plans into what are known as multiemployer pensions. An example of a multiemployer pension is CAAT, which includes The Globe and Mail, Brink’s Canada, the Ontario Dental Association, the Greater Toronto Airports Authority, some colleges and universities, and many others.
CAAT says it has added 50,000 members since 2018, 70 per cent of whom had workplace savings programs that were inferior to defined-benefit pensions or had no retirement plan at all. CAAT stands for colleges of applied arts and technology, which were the original plan members.
The main type of pension beyond DB is the defined contribution plan, where members and employers make contributions and investments grow until retirement. At that point, the employee must decide how to deploy them to generate retirement income.
The number of DC plans declined to 6,080 in 2022 from 6,366 in 2018, but the number of plan members grew to 1.23 million from 1.16 million. As important as this growth in plan members are improvements in employee engagement with their plans.
For example, DC plans providing members digital access to their accounts has produced huge benefits. Clients monitoring their accounts on mobile devices or computers have average balances almost 2.5 times larger than others and contribute 60 per cent more every year, said Eric Monteiro, senior vice-president of group retirement services at Sun Life Financial, which is a big player in administering DC plans.
A trend among mid-size companies with plans administered by Sun Life is getting more serious about matching employee contributions to at least some extent. “Employers are saying, we need to match because that’s what drives deposits,” Mr. Monteiro said.
The overall decline in the number of DC pensions at least partly reflects the DB trend of multiemployer plans. Hidden beneath this overall decline is growth in DC plans offered by small employers. Sun Life says there has been a 20-per-cent increase since 2020 in the number of small-employer DC plans it administers.
Mr. Monteiro said employers are increasingly using auto-enrolment for DC plans, which means employees are automatically enrolled either right away when starting a job or after a waiting period.
Another nuance lost in the decline in the number of pension plans is the rise of non-pension savings plans. “Many employers are now offering a group registered retirement savings plan, and a lot of those have expanded to include tax-free savings accounts, first home savings accounts and student debt repayment plans (where available),” Janice Holman, a principal at actuarial consultants Eckler Ltd., said by e-mail.
Pensions work as a driver of retirement savings, and they’re not as scarce as they’re sometimes made out to be. But Statistics Canada’s most recent numbers show that just 38 per cent of paid workers were covered by a registered pension in 2021, up from 37.8 per cent in 2016.
“Over all, no matter how you look at the numbers, we’re still woefully underpenetrated,” Mr. Monteiro said.
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