A proposed tax credit targeted at small and mid-sized employers could help narrow the gap in retirement coverage between the public and private sectors, says a report from the C.D. Howe Institute released on Tuesday.
That gap in retirement plan coverage has steadily hovered at around 50 percentage points over the past 50 years, based on data cited in the report “Spreading the Benefits: A Targeted Tax Credit Needed to Expand Retirement Plan Coverage in Canada’s Private Sector” by Keith Ambachtsheer, executive-in-residence and director emeritus of the University of Toronto’s International Centre for Pension Management, and Alex Mazer, CEO of Common Wealth, a fintech that provides retirement plans.
The authors estimate that about 9.1 million Canadian employees (about half of all workers in the country) have no workplace retirement plans.
To help narrow the gap, the report proposes a targeted federal “Small Employer Retirement Plan Tax Credit” to help reduce the cost barriers for small employers.
At an estimated expenditure of $1 billion–$2 billion over five years, the credit could expand coverage to 125,000–500,000 workers by subsidizing plan set-up costs and employer contributions, cutting the cost of offering a plan by nearly half for the typical small or mid-sized employer. The estimated expenditure is “a modest cost in the context of federal retirement spending,” a release said.
Budget 2025, released in November, projected a $78.3-billion total deficit for the current fiscal year (to March 31, 2026). That figure is projected to steadily decrease to $56.6 billion by 2029–30.
The proposed tax credit could help more Canadians build longer-term financial security and help small businesses offer more competitive compensation. As things stand, less than 19% of small and mid-sized employers with five to 499 employees offer retirement plans, relative to nearly half of comparable employers in the U.S., the C.D. Howe report said.
Christine Van Cauwenberghe, head of financial planning with IG Wealth Management, said in a release on Tuesday that the decline of defined-benefit and defined-contribution pension plans “has fundamentally shifted the burden of retirement planning onto individuals in recent years.”
IG Wealth Management’s annual retirement study, conducted by Pollara Strategic Insights in January among 1,350 non-retired Canadians, found that less than half of the respondents — 48% — had workplace pension plans.
The study also found knowledge gaps. For example, about half of respondents said they didn’t know how much annual income they’d need in retirement.
Further, few respondents had factored inflation, health‑care costs, market downturns or longevity risk into their retirement plans, the IG Wealth release said.
To encourage low- and middle-income Canadians to obtain financial planning advice, a policy paper commissioned by FP Canada and released three years ago had floated the idea of a refundable tax credit for such taxpayers accessing financial planning for the first time.
“Addressing financial vulnerability and building financial resilience are multifaceted challenges that require an equally multifaceted approach to best support Canadians,” FP Canada said in an emailed statement on Wednesday. “Accordingly, we have been having discussions with decision-makers in Ottawa across the political spectrum on a tax credit proposal to improve access to professional financial planning services for low- and middle-income Canadians.”
FP Canada president and CEO Tashia Batstone (and FP Canada consultants) reported meetings last year with policymakers and advisors in Ottawa, including staff from the Department of Finance and the Privy Council Office, according to the federal lobbyist registry.
FP Canada’s emailed statement said the certification body was “also actively consulting with a range of other stakeholders, including financial institutions and consumer advocacy groups, on this proposal.”