How plan sponsors can make pensions feel essential before retirement: report

Most Canadians with a defined benefit pension say they “couldn’t live without” that income – but they only realise it after they retire. 

The National Institute on Ageing’s report, Understanding and Communicating the Value of Workplace Retirement Plans, explains why this gap exists and how plan sponsors and administrators can close it for people still in the workforce. 

The core problem: “money now” vs “money later” 

The report shows that retirement planning is inherently complex. Members must weigh: 

• Lifetime income for predictable, recurring expenses. 
• Flexible savings for unexpected or non‑routine costs. 

Well‑designed workplace plans already help with both.  

They structure saving, offer cost‑effective ways to create lifetime income, and support decisions about the right mix of lump sums and secure payments. Yet many members still: 

• Focus on starting pay instead of total rewards. 
• Under‑contribute in capital accumulation plans. 
• Take commuted values rather than deferred pensions. 
• Claim pension benefits as early as possible. 

The authors trace this pattern to behavioural biases and decision overload, not just lack of information. 

Why traditional education falls short 

The report stresses that conventional financial education does not neutralise psychological biases. People face: 

• Present bias: a strong pull toward “cash today.” 
• Loss aversion and lump‑sum bias: fear of “losing out” if they die early, and a tendency to see a large balance as more valuable than a stream of income. 
• Optimism and survival biases: underestimates of both future expenses and lifespan. 
• Herding: copying peers when choices feel too complex. 

When sponsors present information in abstract, system‑level terms or lean on simplistic calculators, members either disengage or rely on these shortcuts.  

The report also warns that efforts to appear neutral are misleading: defaults, wording and examples always frame choices and influence behaviour. 

Reframing the value of workplace plans 

The authors propose three linked shifts for workplace plans. 

1. Move from accumulation to decumulation thinking 

The traditional three‑pillar model (government, workplace, individual) reflects the provider’s view and focuses on funding sources.  

The report replaces this with the NIA Retirement Income Framework, organised from the retiree’s perspective into: 

• Income foundation: predictable, lifelong monthly income for routine spending (CPP/QPP, OAS/GIS, workplace pensions and annuities). 
• Spending buckets: flexible resources for non‑routine spending (RRSPs, RRIFs and other tax‑deferred savings, TFSAs, home equity, other savings). 

This framing pushes members to ask, “How much secure income will I have every month, and what will cover the rest?” rather than “How big is my account?” It also makes the role of workplace plans in that income foundation far more visible. 

2. Make the full spectrum of value visible 

The report argues that secure lifetime income does more than replace earnings. It sets out five key benefits of retirement income security: 

1. Lifetime financial security – “a guaranteed paycheque for life.” 
   Stable income protects against market volatility and the risk of outliving assets. 

2. Freedom and confidence in retirement. 
   Retirees with strong pensions spend more comfortably, instead of hoarding savings out of fear. 

3. Peace of mind and better health. 
   The report links income insecurity to stress, poorer mental health and worse physical outcomes. Predictable income reduces this “lifelong emotional roller coaster.” 

4. Reduced burden on families. 
   As more older adults experience cognitive decline, lifelong income simplifies financial management and lessens the strain on those holding Powers of Attorney. 

5. Protection against financial exploitation. 
   Regular income is harder to mismanage or divert than a lump sum, reducing exposure to fraud and family disputes. 

Even where plans are purely capital accumulation, the report notes that sponsors can frame communication around how balances might later support this income foundation (for example through annuities, dynamic pensions, or using savings as a bridge to defer CPP/QPP or OAS). 

3. Replace weak calculators with tiered, decision‑ready tools 

The report is critical of common retirement calculators that: 

• Produce a single deterministic projection based on averages. 
• Stop at “life expectancy.” 
• Treat drawdowns from savings as if they were as secure as indexed pensions. 
• Ignore taxes, income‑tested benefits and complex plan rules. 
• Anchor members to arbitrary defaults and the outdated “70% replacement rate.” 

According to the authors, these tools can create a dangerous illusion of certainty and nudge members away from financially secure choices. 

They propose a three‑level tool strategy: 

• Level 1 – Plan‑specific estimators: 
  Accurate, personalised projections of workplace benefits under different contribution levels, earnings paths and retirement ages, using administrator data. 

• Level 2 – Net spendable income projections: 
  Integration of Level 1 results with CPP/QPP, OAS, GIS and the tax system at the household level, showing after‑tax, after‑transfer income and clearly distinguishing between lifelong income and flexible savings. 

• Level 3 – Advanced modelling and advice: 
  For members with larger portfolios, professional advice supported by richer modelling that uses the same accurate plan‑level inputs. 

The report also notes that usage hinges on how sponsors introduce these tools: embedding them in key events, automating inputs, using clear visuals, promoting them regularly and emphasising unbiased guidance. 

What matters most for plan sponsors 

Across the report, three themes stand out for sponsors and administrators: 

• Members already value secure lifetime income – but usually only in hindsight. The task is to bring that appreciation forward into working‑age decisions. 
• Communication and tools either reinforce biases toward “money now” or help members shift towards “money later.” There is no neutral middle ground. 
• When plans consistently frame benefits as part of an income foundation, highlight the five key advantages of secure income, and support decisions with robust, user‑centred tools, members are more likely to engage, understand and use their plans as intended. 

The authors close with a simple loop: when members place a higher priority on future income, they engage more; stronger engagement deepens understanding; better understanding, in turn, reinforces the perceived value of workplace retirement plans.