New report argues the problem is rooted in how the human brain processes long-term financial decisions
The Pension Centre of Excellence at the National Institute on Ageing (NIA) released its new research report Understanding and Communicating the Value of Workplace Retirement Plans on Thursday, drawing on behavioural economics research and new Canadian evidence to diagnose the persistent gap between what workplace pensions are worth and how employees perceive them.
The report, co-authored by Bonnie-Jeanne MacDonald, Doug Chandler, Barbara Sanders and Alyssa Hodder, identifies a pattern that will be familiar to most plan sponsors - workers chronically prioritize cash in hand over deferred compensation.
According to the NIA's release, job candidates fixate on starting salary while overlooking total compensation. Employees fail to contribute enough to capture the full employer match. Members choose cash over deferred savings in flexible benefits programs. Meanwhile, at the end of their careers, retirees opt for lump-sum payouts instead of the secure lifetime pension income that would protect them through decades of retirement.
These are not irrational decisions in the traditional sense. Rather, as the release argues, the predictable result of cognitive biases - including present bias, loss aversion and what researchers call lump-sum bias that systematically distort how people weigh "money now" against "money later.
"When behavioural and psychological biases are not accounted for, workers routinely undervalue lifelong income and overlook the full benefits of their workplace retirement plans," MacDonald said in the release, who's also director of financial security research of the NIA.
The authors position this as an engagement problem with a communication solution. When deferred income is given sufficient priority alongside immediate pay, workplace retirement plans become personally relevant to members. The challenge for employers, plan sponsors and administrators is making that shift happen.
To that end, the NIA suggests three strategies for closing the perception gap. Building on the NIA's 7 Steps Toward Better CPP/QPP Claiming Decisions paper series, the report outlines three evidence-based approaches.
First, plan sponsors need to shift the framing from accumulation to decumulation. The NIA highlighted their Retirement Income Framework that encourages plan members to evaluate their retirement resources based on their ability to sustain lifelong spending, rather than treating savings as a static balance, which helps “workers better understand the role their workplace plan plays in sustaining secure income throughout retirement,” said the NIA in its release.
Second, make the intangible benefits visible. Secure retirement income reduces financial stress, improves well-being, stabilizes families and lowers vulnerability to financial exploitation. The report argues that surfacing these "invisible" benefits can meaningfully reshape how members value their plans.
Third, equip employees with integrated decision-making tools. The report calls for modern planning tools that bring together workplace pensions, personal savings, public benefits like the CPP and QPP, taxes and transfers, giving members a clear picture of “how today's decisions translate into future net spendable income at the household level,” said the NIA.
"This research helps clarify how workplace retirement plans function as a core component of total compensation," said Mark Hazelden, the NIA's interim executive director, adding that the report provides employers and policymakers with practical tools to better communicate and realize the full value of their plan investments.
“Understanding the true value of workplace retirement plans is essential to strengthening long-term financial security in Canada.”
