While earlier generations of Canadian retirees fared well despite limited financial literacy thanks to simpler pension systems, today’s employees face a more complicated journey through a self-directed financial landscape, according to a new report by the C.D. Howe Institute.
It found Canadian employees, especially those in the private sector, are partially left to their own devices for their financial futures as employer-defined benefit pension plans diminish and reliance on private savings steadily grows. With many Canadians lacking even basic financial literacy, the report argued that individuals urgently need better guidance to navigate the expanding range of financial products and decisions they face.
“Choice architecture can help overcome inertia, especially when people are essentially flying blind through their financial decisions,” said Pierre-Carl Michaud, economist and professor at HEC Montréal and the report’s co-author, in a press release. “But without understanding why saving more matters, people simply won’t do it. At the core, there is a financial literacy problem. Education and architecture are complements.”
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While household net worth more than doubled from 1990 to 2024, access to private registered pension plans has fallen sharply, the report said, noting this shift highlights the growing risks of a system that places more responsibility on households, who often struggle to determine which savings vehicle best suits their needs. Indeed, the report noted many Canadians are effectively flipping a coin when choosing between a tax-free savings account and a registered retirement savings plan.
It called for governments to take a more active and coordinated role through policy interventions such as using choice architecture to improve saving incentives, establishing a minimum baseline of financial literacy through targeted education and responsible deployment of artificial intelligence to both strengthen financial literacy and support the supply of financial advice.
“Canadians live longer, often 20 years or more after turning age 65, but few know how much savings they will need or how to transform their savings into reliable income to supplement the guaranteed, inflation-protected retirement benefits they will receive from public pensions programs like old-age security, guaranteed income supplement and the Canada and Québec Pension Plans,” said Bernard Morency, co-chair of the C.D. Howe Institute’s pension policy council, who co-authored the report. “It is as if Canadians have been moved from passengers to pilots in their own financial airplanes, with many having little flight training.”