Expectations are rising to hold corporations accountable for the well-being of society and the planet, ensuring that a commitment made will be a commitment kept. 

Much of the focus has been on the ‘E’ and environmental investments. More attention is needed on the ‘S’ and ‘G’ to uphold responsibilities to uphold social value and good governance. As ESG becomes a household term, employers can enhance the ‘S’ pillar by recognizing the social value of pensions and providing lifetime retirement income. 

The social or ‘S’ pillar of ESG refers to the social impacts that a company provides through its:

• products and services 
• behaviour on social issues
• treatment of employees
• actions in local communities 

The concept is built on the truth that a business can make a wider contribution to society. It serves as a framework to measure the impact of a company’s activities in improving the quality of life of people, especially its employees. 

By design, pensions reflect a responsible, long-term investment in the well-being and financial security of employees and can be considered a driver of the ‘S’ pillar. A growing body of research has found that pensioners rely less on social assistance programs and enjoy more financial security to live independently as seniors. This in turn helps to protect the country’s social security, health care, and talent systems – a long-term outcome that is good for employees and Canada overall.  It is also a valuable business solution, especially where talent management is so critical. 

The pension industry’s efforts to improve access to affordable workplace plans is an advantage for all of Canada with broader societal benefits. Today, employees of all demographics and all sectors have access to lifetime retirement security. However, low pension coverage especially in the private sector continues to drive the abiding retirement savings crisis in Canada.

Inadequate Retirement Savings Gap Growing

Most Canadians are not saving enough for retirement and are at risk of outliving their savings, and many who save are doing so without fully knowing the true cost of health care and living comfortably in old age. Studies tell a dire story of the retirement realities and longevity misconceptions prior to the pandemic, scenarios that have only exacerbated since: 

• Almost a third of Canadians (32%) on the cusp of retirement age (45 to 64 years old) had nothing saved for their retirement prior to the pandemic, and almost half of all Canadians (49%) had nothing or less than $50,000 saved.[1] 
• 70% of Canadians were worried that they weren’t saving enough for retirement.[2]
• 32% are concerned they will outlive their savings by more than 10 years in senior age.[3]

Employees who depend solely on CPP/QPP and OAS to supply their retirement income often don’t realize that these programs are meant to cover basic living expenses only, not the quality of life that many may wish or expect to live in retirement. Now, amid market uncertainty, rapidly rising living and health care costs, the outlook is even more concerning for those without adequate, predictable paycheque and cost-of-living adjustments. 

A typical Canadian retiree should plan for a retirement to age 90 or 95, yet the longer a person lives, the higher their healthcare and living costs become. The average per-person out-of-pocket spending on health care for Canadians aged 64 and below is $2,700. For Canadians aged 65 and over, the average spending is more than four times higher at $12,000.[4]

The demographic shifts are already impacting the health care system. Seniors currently make up one-fifth of the population, yet they account for nearly half of all health care spending. Currently, seniors outnumber children, a first in Canadian history. By 2056, a third of the population will be 65 and older. By that time, the costs of long-term care will take up more than a quarter of all income tax revenues.[5]

To better manage impending demographic shifts and downstream costs, Canada needs a comprehensive aging strategy that includes a strong and efficient workplace pension system as a core pillar.

The Pension Solution for Canada’s Aging Population 

Pensions improve security for one of society’s most vulnerable populations – seniors – and generate social and economic good for all Canadians. A study conducted by the Canadian Centre for Economic Analysis (CANCEA) found that every $10 that a pensioner receives generates $16.72 in economic activity for the country, driving $82 billion in national GDP.[6] That is slightly higher than the GDP of Saskatchewan, or Nova Scotia and Newfoundland combined.

Across Canadian communities, pension spending supports 877,100 local jobs, and 55,500 mostly small businesses and businesses that employ young employees, a vital workforce for the economy. Spending from benefits paid contributes $21 billion in government revenue, which can then be spent to support government services aimed at improving the quality of life. 

Social and economic benefits of pension spending (CPPLC, CANCEA)

Other studies conducted by CANCEA in Ontario and Alberta found that public sector pensioners are more active in their communities, are more prone to charitable giving, and enjoy higher satisfaction with their health. Specifically, 90% of retired members in Ontario and 89% of retired members in Alberta attribute higher life satisfaction to being part of a DB pension plan.[7] [8]

Pensioners enjoy less stress in their working years by not needing to worry as much about retirement as many Canadians without a plan do. Across all four areas that drive satisfaction with life – financial security, mental and physical health, community involvement and recreational leisure, and reduced stress – the certainty of stable retirement income paid for life was a differentiating driver. 

As many of us have contemplated, particularly those with children or aging parents, retirement income security can:

• drastically reduce stress and burden on caregiving families
• equip our seniors to live financially independent lives 
• make it easier to age in place, afford prescriptions, and maintain a healthy lifestyle

All of Canadian society benefits from a widely accessible pension system. In an increasingly uncertain world, the certainty of retirement security with lifetime income is not only an economic solution – it is a human solution. By promoting the social value of workplace pensions, the industry can strengthen the business case through and ESG lens and broaden the perspective on how businesses can build a more sustainable future for society.