Fewer private sector workers have pensions. What does it mean for retirement?

The number of Canadians registered in a pension plan is going up, but the slight growth is led by public sector employers while those working in the private sector saw a small dip in access.

In 2024, the number of Canadians who were active members of a registered pension plan (RPP) grew by 132,000 or 1.8 per cent from 2023 to nearly 7.4 million members, Statistics Canada said on Tuesday.

Public sector plans added nearly 157,900 new participants, marking a four per cent increase, taking the total number of public sector participants in a pension plan to just over four million members.

Meanwhile, private sector membership fell by 0.8 per cent or 25,800 members, dipping below 3.3 million members.

Membership in defined benefit pension plans fell by 21,300 members or 1.6 per cent from 2023 to 2024, while defined contribution plans saw a smaller decrease of 4,300 members or 0.4 per cent from 2023 to 2024, Statistics Canada said.

For many private sector employers, having a defined benefit pension plan is not worth the cost, said Steve Hatzipantelis, vice-president of wealth at Ontario-based credit union YNCU.

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“Private employers have been shredding or shedding defined benefit plans, specifically by about 1.6 per cent, reflecting the ongoing shift away from costly defined benefit structures towards DC (defined contributions) and other models,” he said.

A defined benefit structure guarantees a defined income to the employee for life after retirement. The payout depends on factors like age, time spent with the company and their earnings with that employer.

A defined contribution plan puts the onus on the employee to contribute regularly, which some employers choose to match.

In public sector jobs, pension plans are often viewed as a foundational part of the job, said Daniel LeBlanc, portfolio manager and chief financial officer at wealth management firm Verecan.

“Public sector pension plans have long been an important component of collective bargaining agreements and remain a key part of employee compensation and retirement security,” he said.

“In the private sector, defined benefit pension plans are expensive to administer and expose employers to significant long-term financial obligations. As a result, it is not surprising that many employers have moved away from traditional pension plans in favour of more cost-effective alternatives, such as Group RRSPs,” he added.

Retirement planning in Canada is often referred to as a “three-legged stool,” Hatzipantelis said.

“The three-legged stool of Canada’s retirement system includes government benefits, workplace pensions, and personal savings,” he said.

Using only one or two of them may not be enough to guarantee a comfortable retirement, Leblanc said.

“Relying solely on CPP and OAS would leave many Canadians struggling to meet their financial needs in retirement,” he said, adding that it is important to maximize your RRSP if you plan to travel in retirement or have other major expenses.

“Combined, these three parts balance public safety nets with personal choices to keep seniors financially stable. Relying on just one or two of the legs leaves a gap,” Hatzipantelis said.

“CPP and OAS alone typically isn’t enough to maintain a pre-retirement standard of living, and personal savings alone carry more market and longevity risk,” he added.

Even without a membership in one, you can build habits that mimic a pension plan, Leblanc said.

“Employees with pension plans have contributions automatically deducted from their pay, and those without a pension can adopt the same approach by setting up automatic, recurring contributions to an RRSP or TFSA,” he said.

Canadians without a pension plan can start by “maximizing CPP and OAS by understanding when to start each and how delaying (drawing on payments) can increase monthly payments,” Hatzipantelis said.

It can also help to talk to a financial adviser and invest your RRSP, so that it compounds over time, he added.

“The earlier (you start) the better. Starting early makes all the difference because it helps build the discipline that’s required for a financially sound retirement,” he said.