The Future of Pensions in Canada

Silvana Pozzebon

Abstract —Canada’s multi-pillar retirement income system includes a public pension pillar with both a poverty reduction program for the elderly funded out of general tax revenues, and a pay-as-you-go earnings-related income replacement program. Reforms implemented to partially fund the latter have probably increased the financial sustainability of Canada’s public pension scheme, at least for the medium term. A second, relatively large, pillar of the nation’s retirement income system consists of voluntarily provided employer sponsored pensions. As employers adapted to the changing context of the last decade or so, two tendencies gradually became discernable: a slow decline in registered pension plan coverage, and a complementary shift from defined benefit to defined contribution pension arrangements, many of which allow employees to make investment decisions. Recent large unfunded pension liabilities among the former, coupled with the inherent riskiness of savings arrangements of the latter type, suggest growing retirement income insecurity for working Canadians.