Closing the pension gap

In early May, I had the privilege of being a panelist at a conference held in Toronto by the Institute for Research on Public Policy. The conference was entitled ‘Avenues for Reforming the Canadian Retirement Income System’. These days, that’s a hot topic in the industry. The panel I was a part of discussed ‘Savings Instruments for Workers in Small and Medium-Sized Enterprises’. The theme was the availability of retirement savings vehicles in the work place for employees of small and medium-sized businesses.

As I prepared for the conference, two things struck me. One is there has been some very good work done on how to improve access to work place retirement savings vehicles for SME’s. The second is while there are a number of “big” retirement savings topics where additional public discussion and analysis are needed, such as a second-level public pension plan similar to the one advocated by Keith Ambachtsheer and more recent suggestions that there may yet be an expanded role for defined benefit pension plans, there is also a series of smaller steps that could be taken now that could markedly increase the retirement savings coverage for small and medium-sized businesses.

Statistics Canada has published a number of surveys/reports indicating that somewhere between one-third and 40% of Canadian workers are covered by workplace pensions, which means that somewhere between 60% and two-thirds are not. Moreover, while workplace pension coverage is very high in the public sector – more than 80% in 2008, it is that much lower in the private sector (approximately 25%). Regardless of the specifics, it seems clear that far too few employees in Canada participate in a workplace retirement savings plan, and there are no signs of improvement.

Is the problem worse for small and medium-sized businesses? There appears to be plenty of hard data in this area, but there is compelling evidence to suggest it is a more significant problem for SME’s. While businesses employing less than 100 workers make up nearly half (48%) of the country’s private sector labour force, small private sector pension plans (those with less than 100 members) represent only 7% of the sector’s pension membership. So it seems pretty safe to suggest that the problem is worse for SMEs.