Canada’s workplace retirement gap is neither a mystery, nor a product of collective apathy. It is a structural byproduct of where the modern economy lives and works: in small and mid-sized firms (SMEs) and among a workforce that is increasingly mobile and precarious. For millions of Canadians, retirement saving is not a disciplined, automated plan; it is a residual activity. They save modest sums — if any — after monthly bills are settled.
The C.D. Howe Institute’s proposal for a small employer retirement plan tax credit is a thoughtful and pragmatic attempt to step into this breach. By offering tax credits to offset setup costs and employer contributions, the proposal aims to lower the barrier for the nearly nine million Canadians currently without a workplace plan. On its own terms, the goal is unimpeachable. It is a policy tool designed for the world as it currently exists.
However, the proposal also serves as a reminder of how far Canada has drifted from our own history of bold system design. We have become so accustomed to a retail-first architecture that even our most innovative policy proposals often default to tax incentives designed to nudge a fragmented private market.
If we want to solve this problem, rather than simply treat it, we need to understand how this country and its policy makers lost the institutional muscle memory that once defined Canadian nation-building policy.
Retail solutions
Our current state of second-best outcomes is not an accident. It is the product of a powerful and seductive interaction between a highly effective financial industry and an execution-challenged Canadian polity.
For decades, the financial industry has been remarkably successful in architecting retirement security as a collection of retail products rather than a piece of national infrastructure. From the RRSP in 1957 to the TFSA in 2009, our system has been built on individual accounts managed by private providers.
This model aligns with the industry’s strengths — world-class distribution and robust investment platforms. By presenting the discussion in terms of consumer choice, the industry has strategically influenced the scope of policy considerations and preserved its prominent position within the framework.
On the other side of the ledger sits our government architecture. Canada operates as a complex, multi-jurisdictional matrix where legislating national solutions is an exercise in bureaucratic endurance. Because building a new, pooled institutional platform is so politically and administratively difficult, our policy makers often retreat to the path of least resistance: the tax system. In this environment, a tax credit is seductive. It is familiar and it avoids the messy work of navigating the federal-provincial divide.
It is easy to forget that we were once capable of overcoming these roadblocks. In 1965, the creation of the Canada Pension Plan (CPP) was a feat of institutional ambition that required navigating a fierce federal-provincial standoff and significant industry pushback.
As a country, we recognized then that the retail solutions of the era could never provide the portability and scale needed for a modern workforce. We built a world-class institutional platform that became the bedrock of Canadian retirement.
But since then, we have retreated. We have defaulted back to the easy path of retail accounts and tax-incentive nudges.
The CPP was our first best moment. The last 60 years have been a slow drift into second bests. In today’s fraught geopolitical and economic environment, this good-enough mantra is neither good nor enough.
The C.D. Howe proposal
The pathology behind the proposed small employer retirement plan tax credit is flawed. It frames the barrier for SMEs as one of cost. While cost matters, the more binding constraint is often operational friction. For most SMEs, offering a plan is a marathon of ongoing responsibilities: selecting plan types, choosing providers and managing fiduciary obligations.
A tax credit may offset an invoice, but it does nothing to remove the complexity. This inevitably advantages larger SMEs with internal capacity, leaving the smallest firms — the segment where the gap is widest — exactly where they started.
If we applied the original spirit of the CPP to supplementary savings, we would redefine the roles entirely. The employer’s role would shift from plan sponsor to remitter, simply checking a box in their payroll software to send contributions to a centralized clearinghouse. This would create portable, social-insurance-number-linked accounts that follow workers automatically across jobs. It would be managed by a statutory entity with the scale to drive fees toward zero and the governance to ensure disciplined, long-term investing. This is not central planning; it is modern infrastructure.
C.D. Howe is right to focus on the coverage gap, and their proposal offers a practical incremental step. But as a country, we must ask why we are so comfortable with increments when we have the blueprints for something better.
The roadblocks to an institutional solution are real. They include an influential financial sector and a federation that often struggles with execution. But these are the same roadblocks we cleared in 1965.
Our real failure today is one of vision. We have allowed our reliance on supplementary retail products to atrophy our capacity to even conceive of a national institutional solution. It is time to reclaim that capacity. We need to confront the execution hurdles of our federation and reclaim our capacity for institutional design.
Canada’s workers do not need another tax deduction. They need a retirement system that is as dynamic and as durable as the one we built 60 years ago. Let us stop defaulting to the easy path and start building the one we need.