Pension plan design can fix retirement expectations, says CAAT

A recent study from CAAT Pension Plan has found financial security in retirement isn’t just a distant concern but also has immediate consequences, particularly for those underestimating their savings.

CAAT’s research exposes a sharp disconnect between working Canadians’ retirement expectations versus what retired Canadians actually experience. The findings raise pointed questions about whether the country's current savings infrastructure is setting workers up to fail.

Poor savings habits can lead to lasting consequences

The study, which surveyed more than 3,000 respondents across Canada, found that working Canadians consistently underestimate where their retirement income will come from. Nearly one in four expect personal savings to be a primary source of income. But among retirees, only about one in seven rely on it in practice.

"The thing is that if we over rely on our personal savings and overestimate this part of our retirement income, it could lead to outcomes that are not in line with the way people want to live their retirement goals," said Anthony Damtsis, insights and analytics leader at CAAT. "They may outlive their money. It may lead to greater dependence on public supports. The list goes on,” he said.

Consequently, working Canadians underestimate how much of their retirement income will come from CPP and OAS. The reality, according to CAAT's data, is that government benefits take up a larger share of retirement income than most workers anticipate.

That miscalculation feeds into another pattern the research uncovered: rather than adjusting their savings strategy, Canadians tend to push back when they plan to stop working.

"People don't update what their retirement goals will look like. Over time, people's expectations or ideal retirement ages are very early but the closer they get to retirement, and perhaps the more realistic they get to what their retirement is going to look like, they will oftentimes consider extending their working years," Damtsis said, noting the study found that the expected retirement age drifts to 67.

Furthermore, he believes Canadians tend to treat retirement as a moving target, adjusting their expectations as life circumstances shift rather than locking in a plan. He pointed to behavioral economics research showing that people are not naturally wired to plan for the distant future, and that the uncertainty of not knowing what retirement income will look like creates persistent financial stress during working years.

How pensions can play a role in retirement expectations

Among retirees who have one, DB pensions account for 48 per cent of retirement income. Damtsis said that figure shows DB plans "form a structural part of Canadians' retirement planning." For many, he added, "this is the difference between getting by and living well."

For the 38 per cent of Canadians without a workplace pension, according to CAAT’s research, Damtsis said they aren't doing enough to prepare for retirement. He described what he called “a habit stacking effect, where having a pension in place makes workers more likely to take up additional savings activities such as TFSAs and RRSPs,” he said.

In contrast, workers without a pension are less likely to layer on those behaviours. He added that the pattern holds across all income levels, suggesting it’s not simply a matter of higher earners having more to save.

Pensions, he argued, help counter that by providing a predictable income floor that reduces anxiety and gives workers something concrete to plan around. Without that stability, many Canadians lack both the tools and the confidence to build a realistic retirement strategy.

Additionally, workers with DB plans and stable financial footing tend to have more spending power earlier, not just later, Damtsis suggests, which he said opens broader economic opportunity for Canadians at every stage.

‘A retirement puzzle that’s very difficult to solve’

Jillian Kennedy, CAAT’s chief operating officer, acknowledged that retirement planning has always carried a degree of complexity, but the real question revolves around who bears the burden of navigating it. When that responsibility falls on the individual, the challenge becomes far harder to manage, she said.

“People spend more time planning vacations than they do their retirement,” she said. “If we start to take a look at the individual needing to do this, it starts to become like a retirement puzzle that's very difficult to solve,” added Kennedy, noting at the macro level, Canadians are no longer dealing with isolated disruptions.

From the bottom up, Kennedy pointed to a structural shift away from pension plans toward a fragmented mix of RRSPs, TFSAs, personal savings, and government benefits that leaves individuals constantly recalibrating on their own. The risk, she said, has been transferred to workers who are not equipped to manage it.

"We have not only passed the risk to the individual, but we've passed this concept of maybe your personal savings in government aren't going to be enough," she said, underscoring the data from CAAT's own research reinforces the point: when workers have a pension with a guarantee built into the design, retirement income is higher.

“We've always seen fear and complexity get introduced when macro factors are not aligned. No matter where you're looking, risks today have become much more complex … And while this is happening, longevity is increasing, inflation is going up, and cost of living is much more difficult. So, it's going to compete with what I say for tomorrow versus what I spend on today,” said Kennedy.

“I think we must recognize that we've got some type of macro event that changes. There's a little bit of a blip in that complexity and that complexity will just become part of the distraction that we need to consider,” Kennedy added.

What effective plan design looks like now

According to Kennedy, the gap between what employees expect from their employer and what employers deliver on retirement is getting wider, and that mismatch represents both a problem and an opportunity. She pushed back on the industry's longstanding reflex to solve the problem through education.

"We've tried many times to educate and expand existing pieces. What we've seen is that it comes down to plan design," she said.

Her argument is that projection calculators, financial literacy tools, and supplementary savings vehicles like TFSAs have not moved the needle. What workers need instead are plan design features that build predictability and transparency directly into the formula—so they can see in real time what today's contributions will deliver in retirement. She noted that the retirement industry gives investors detailed warnings when they deviate from their investment style yet offers no equivalent mechanism showing workers the consequences of inadequate plan design.

While flexibility in plan design does matter, she questioned why it can't sit alongside a pension as a secondary offering rather than replacing it. She pointed to the public sector, where pension access is non-negotiable and employers use it as a retention tool with clear results.

Kennedy believes the opportunity isn’t about injecting more money into the system but redirecting existing resources toward a model that delivers lifetime income. She drew a parallel to how health benefits have been modernized over time without necessarily increasing employer spend, and argued pensions are overdue for the same kind of rethinking. She framed pension access as a talent strategy that employers in the private sector are undervaluing.

"It's like giving somebody a higher income when they leave your company. That's exactly what we're talking about here," she said. "If you can say, ‘Yeah, not only can it exist for you, but you need to stay here to get it and let me show you how we'll build it for you’, how is that not a meaningful outcome of your total rewards?" she said.” "Imagine the benefit of saying, ‘When you come and work with us, we actually take care of you in retirement too’.”

Ultimately, both Damtsis and Kennedy frame the root cause as a lack of transparency.

"We are not being transparent with workers on decisions that they're making today and how that affects their retirement," Kennedy said. Damtsis agreed, adding that the research "helps to bring to light the importance of workplace pensions" and should serve as a platform for plan sponsors to act, not just inform.