What is the significance of Canada's pension and retirement systems?

Canada's pension and retirement system is a three-pillar structure that combines public, employer-sponsored, and individual savings. The first pillar is the federal Old Age Security (OAS) programme, funded from general tax revenue and paid as a flat monthly amount to most Canadians aged 65 or older. The Guaranteed Income Supplement (GIS) tops up OAS for low-income seniors. The second pillar is the Canada Pension Plan (CPP, with the parallel Quebec Pension Plan), an earnings-related contributory plan funded by mandatory worker and employer contributions. The third pillar is private savings: Registered Retirement Savings Plans (RRSPs), Tax-Free Savings Accounts (TFSAs, introduced 2009), employer pension plans, and other investments.

OAS was introduced in 1952 by Prime Minister Louis St. Laurent and now pays approximately $727 a month at age 65 to 74 and $800 a month at 75 and over (2024 rates), increased quarterly with inflation. About 7 million Canadians receive OAS, costing the federal government about $76 billion a year. GIS tops up OAS by up to $1,087 a month for the lowest-income seniors. Both programmes are subject to a recovery tax (often called the OAS clawback) on income above $90,997 in 2024.

The Canada Pension Plan was introduced on January 1, 1966 by Prime Minister Lester B. Pearson. Workers and their employers each contribute 5.95 per cent of pensionable earnings up to the year's maximum, with self-employed workers paying both halves. The CPP Investment Board, established in 1997, manages the CPP fund and is now one of the world's largest pension investors, with assets over $670 billion at March 2024. CPP enhancement, phased in from 2019 to 2025, raises the income-replacement target from one-quarter to one-third of pensionable earnings.

Employer-sponsored plans cover about 38 per cent of Canadian workers, mostly in the public sector. Defined-benefit plans, including the Public Service Pension Plan, the Ontario Teachers' Pension Plan (managed by Canada's second-largest pension fund), and HOOPP (Healthcare of Ontario Pension Plan), remain common in government and education. Defined-contribution plans, Pooled Registered Pension Plans, and group RRSPs are more common in the private sector. RRSPs and TFSAs together hold about $2.5 trillion in Canadian household retirement savings.