A new CD Howe Institute paper says a small employer tax credit could extend workplace pension coverage to as many as 500,000 Canadians
Canada’s workplace pension coverage problem is now overwhelmingly a small-employer problem – and the proposed fix is surprisingly modest.
A CD Howe Institute paper finds that about 9.1m Canadian employees do not have any workplace retirement plan, even after counting group RRSPs, DPSPs and other capital accumulation plans.
The vast majority work for small- and mid-sized employers (SMEs), where plan sponsorship remains the exception, not the rule.
The coverage gap is concentrated in SMEs
According to Statistics Canada, 37.7 percent of workers belonged to a registered pension plan (RPP) in 2023, but public–private coverage remains sharply divided: 87.4 percent of public-sector workers have an RPP, versus 20.4 percent in the private sector.
When the Office of the Chief Actuary adds group RRSPs and DPSPs, private-sector workplace coverage rises to about 37 percent, leaving a persistent 50-percentage-point gap to the public sector over the past half-century.
Nearly two-thirds of private-sector workers are employed by SMEs, according to federal small business statistics.
Yet a rough comparison of roughly 85,000 capital accumulation plans to about 450,000 SMEs with five to 499 employees suggests only about 19 percent of those firms offer any workplace plan.
The paper contrasts this with the United States, where the Center for Retirement Research reports that nearly half of employers with 100 or fewer employees sponsor a retirement plan and 53 percent of private-sector workers participate.
Most US coverage comes through 401(k)-style DC arrangements that broadly resemble Canadian DC pensions, group RRSPs and DPSPs.
Why this matters for retirement readiness
The authors argue that coverage, not just savings preferences, drives retirement readiness.
They note that group plans typically bundle employer contributions, institutional pricing and fiduciary oversight in ways that individual accounts do not.
Citing recent Canadian research, they highlight that households without workplace pension coverage are less likely to maintain their living standard in retirement and that many workers without plans have accumulated very little in dedicated retirement savings.
A survey by the Healthcare of Ontario Pension Plan reports that 53 percent of Canadians without a workplace plan have less than $5,000 saved for retirement, compared with 35 percent of workers overall.
The paper also notes evidence that typical TFSA investors underperform a simple passive 40/60 portfolio and that only 13 percent of pre-retirees over 50 have a written retirement plan, according to the Ontario Securities Commission.
From mandates to incentives
The authors point to the United Kingdom’s automatic enrolment regime as a powerful model: participation in occupational plans there climbed from 40 percent to 88 percent after employers had to enrol workers by default into a qualifying scheme with total contributions of 8 percent of pay.
Québec’s requirement that employers with five or more employees offer a retirement plan – with employees free to opt out – is cited as a domestic example of a quasi-mandatory framework.
But the paper notes that imposing a national mandate now would likely face “tremendous resistance” from small businesses, given costs and wider economic pressures.
Instead, it recommends starting with a fiscal “carrot” that cuts the real and perceived cost for SMEs of sponsoring a plan.
How the Small Employer Retirement Plan Tax Credit would work
The proposed Small Employer Retirement Plan Tax Credit (SERPTC) directly targets cost, which HOOPP’s 2024 employer survey identifies as the top reason SMEs do not offer retirement benefits.
Surveys in the US show similar patterns, and also suggest that smaller employers routinely overestimate both the cost and administrative burden of offering a plan.
According to the CD Howe paper, the SERPTC would have two core elements:
- A Set-up Credit of up to $5,000 a year for three years to cover qualifying start-up costs such as advisor fees, plan design, employee education, payroll integration and governance. This ceiling roughly aligns with 60 hours of consultant time at $250 per hour, and the authors expect average claims to fall below that.
- An Employer Contribution Credit of up to $1,000 per eligible employee per year for three years, available for employees earning under $150,000. With a typical 4 percent dollar-for-dollar match, this structure would cover about half of employer contributions for a $50,000 earner and about a quarter for a $100,000 earner.
The credit would be refundable so that not-for-profits and early-stage firms can benefit, and would apply to most common workplace designs: DB, DC and hybrid RPPs, group RRSPs, DPSPs, group TFSAs, pooled registered pension plans and voluntary retirement savings plans.
Employers with one to 99 employees would qualify if they have not offered a workplace plan in the previous three years.
The Canada Revenue Agency would administer the SERPTC through corporate tax filings to keep transaction costs low, and the authors suggest an additional, smaller credit for automatic enrolment features, which have boosted participation elsewhere but remain underused in Canada.
Scale of the proposal
Based on scenarios that assume 10 contributing employees per new plan, average $3,000 claims for set-up and full use of the employer credit for three years, the paper estimates that the SERPTC would cost about $1bn to $2bn over five years.
Under those assumptions, the authors project that the credit would:
- add about 125,000 to 500,000 Canadians to workplace retirement plans
- increase the share of SMEs with five to 499 employees that offer a plan from 18 percent to between 20 percent and 28 percent
- raise the overall number of employers offering plans by roughly 20 percent to 60 percent
They argue that the SERPTC would primarily benefit workers in smaller firms and lower- to middle-income segments, who are more likely to lack coverage and face greater risk of financial insecurity in retirement.
