New facts on pension coverage in Canada

by Marie Drolet and René Morissette

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Overview of the study

This study examines the characteristics of Canadian workers aged 25 to 54 who are covered by defined benefit registered pension plans (RPPs) as well as those covered by defined contribution RPPs or hybrid plans. It does so by using new data from the Longitudinal and International Study of Adults (LISA), first conducted in 2012.

  • Between 1977 and 2011, the proportion of the overall employed population covered by RPPs declined from 52% to 37% among men, mainly because of a drop in defined benefit (DB) plan coverage. Among women, RPP coverage increased from 36% to 40% over the same period.
  • In 2012, 33% of employed women and 24% of employed men aged 25 to 54 were covered by DB plans. Women had higher DB coverage rates because they were predominantly employed in sectors with higher coverage rates such as educational services, health and social assistance, and public administration.
  • Among employed university graduates, 42% of women and 30% of men were covered by DB plans. This compared with coverage rates of approximately 18% among men and women with a high school diploma or less.
  • RPP or DB coverage was higher in larger workplaces. About 46% of male employees and 62% of female employees in workplaces of over 1,000 employees were covered by a DB plan.
  • Higher-paid workers had better RPP or DB coverage than lower-paid workers. For example, 60% of female employees (37% of males) in the top deciles of hourly wages were covered by a DB pension plan, compared with less than 7% of those in the bottom decile.

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Introduction

Registered pension plans (RPPs) are a key component of workers' compensation packages and one of the pillars that Canadians use to build retirement income. As the social and economic landscape evolved over the last three decades, the extent to which Canadians held jobs providing RPP coverage changed substantially. Among employed workers at least 15 years of age, the percentage of men with RPP coverage in their job fell from 52% in 1977 to 37% in 2011 (Chart 1). In contrast, women's RPP coverage rose from 36% in 1977 to roughly 40% in the mid-1990s, and remained at this level for the rest of the period.Note 1

Chart 1 Percentage of employees with a registered pension plan (RPP) through their job, by gender, 1977 to 2011

Description for Chart 1

Registered pension plans can take several forms. Defined benefit (DB) plans predetermine the benefits workers will receive based on a formula stipulated in their plan. Other RPPs include defined contribution (DC) plans, in which members' benefits are provided from accumulated contributions plus the return on the investment of those monies, and relatively new hybrid/mixed (H/M) plans, in which income is derived from both defined benefit and defined contribution portions (see Data sources, methods and definitions).

The drop in men's overall RPP coverage observed from 1977 to 2011 resulted from two offsetting trends: a large decline in defined benefit (DB) plan coverage (more than 20 percentage points) and a relatively small increase (less than 10 percentage points) in defined contribution (DC) or hybrid/mixed (H/M) RPP coverage (Chart 2). The overall increase in women's RPP coverage was the result of a steady gain in defined contribution or hybrid/mixed RPP coverage counterbalancing the slight decline in their DB coverage.

Chart 2 Percentage of employees with a registered pension plan (RPP) through their job, by gender and pension type, 1977 and 2011

Description for Chart 2

While these trends are fairly well-known,Note 2 several questions regarding RPP coverage remain unanswered. This is because, until recently, little information existed about the characteristics of workers across type of RPP coverage. The Longitudinal and International Study of Adults (LISA), conducted for the first time in 2012, filled this gap by combining information on both worker sociodemographic attributes and pension plan characteristics.

This article provides answers to many questions that relate to RPP coverage among Canadian employees. Specifically: Which workers are covered by defined benefit RPPs ? Which workers are covered by defined contribution or hybrid plans? Do wages and coverage by defined benefit RPPs appear to be substitutes, with highly paid workers having relatively low coverage, or are these two aspects of worker compensation packages positively correlated? Among defined benefit plan members, does plan generosity vary by education level or by the skill requirements of the job? Does defined benefit RPP coverage differ by firm size to the same extent as coverage by defined contribution RPPs or hybrid plans? This study will answer these questions by focusing on employees in their prime-age working years, aged 25 to 54.

Women have higher coverage rates than men, mainly because of differences in industry of employment

Of all female employees aged 25 to 54, about 1 in 3 were covered by a defined benefit plan in 2012 (Table 1). The corresponding proportion for men was 1 in 4.Note 3 In contrast, men were slightly more likely than women to belong to defined contribution or hybrid RPPs —about 11% of men and 9% of women were covered by these types of RPPs.Note 4

Table 1 Pension coverage by gender, industry and pension type, 2012
Table summary
This table displays the results of Table 1 Pension coverage by gender Percentage of employees with, RPPs , Defined benefit RPPs , Defined contribution or hybrid RPPs , Men and Women, calculated using percentage units of measure (appearing as column headers).
  Percentage of employees with
RPPs Defined benefit RPPs Defined contribution or hybrid RPPs
Men Women Men Women Men Women
percentage
Industries 35.6 41.2 24.3 32.6 11.4 8.7
Agriculture, mining and utilities 38.9 45.2 18.2 19.4 20.7 25.9
Construction 28.1 Note F: too unreliable to be published 21.5 Note F: too unreliable to be published 6.6 Note F: too unreliable to be published
Manufacturing 30.8 26.5 16.8 11.8 14.0 14.7
Wholesale and retail trade 22.4 16.4 6.3 6.7 16.1 9.7
Transportation and warehousing 39.5 39.0 28.0 29.7 11.6 Note F: too unreliable to be published
Finance, insurance and real estate 51.8 62.1 29.1 36.8 22.8 25.3
Professional, scientific and technical services 18.3 14.3 9.8 Note F: too unreliable to be published 8.5 9.6
Management of companies Note F: too unreliable to be published Note F: too unreliable to be published Note F: too unreliable to be published Note F: too unreliable to be published Note F: too unreliable to be published Note F: too unreliable to be published
Educational services 74.1 74.0 67.5 68.7 Note F: too unreliable to be published 5.3
Health care and social assistance 55.0 51.1 48.8 46.5 Note F: too unreliable to be published 4.7
Information and cultural services 32.5 34.7 14.9 20.1 17.6 14.6
Accommodation, food, and other services 15.1 9.3 Note F: too unreliable to be published Note F: too unreliable to be published Note F: too unreliable to be published Note F: too unreliable to be published
Public administration 84.7 85.0 79.8 81.0 4.9 4.1

Part of the gender difference in defined benefit RPP coverage likely results from the fact that women were predominantly employed in industries that tend to have higher coverage rates such as educational services, health care and social assistance, and public administration. In 2012, 42% of employed women aged 25 to 54 were employed in these sectors, more than double the rate of 17% observed for men.

Consistent with this explanation is the fact that gender differences in defined benefit RPP coverage are either small or non-existent within industries―for example, about two thirds of men and women employed in educational services were covered by defined benefit RPPs in 2012.

Multivariate analyses confirm this hypothesis. After taking industry differences between men and women into account, the 8 percentage-point gender difference in defined benefit RPP coverage found in the aggregate in Table 1 was much reduced and was no longer statistically significant.

Young university-educated workers have better defined benefit plan coverage

In general, a higher level of education was associated with higher coverage rates. Among all university graduates, 42% of women and 30% of men were covered by DB plans. This compared with coverage rates of approximately 18% among men and women with a high school diploma or less (Table 2).

Table 2 Pension coverage by education, age, gender and pension type, 2012
Table summary
This table displays the results of Table 2 Pension coverage by education Percentage of employees with, RPPs , Defined benefit RPPs and Defined contribution or hybrid RPPs (appearing as column headers).
  Percentage of employees with
RPPs Defined benefit RPPs Defined contribution or hybrid RPPs
Men Women Men Women Men Women
Age percentage
25 to 54 35.6 41.2 24.3 32.6 11.4 8.7
High school diploma or less 26.7 27.8 17.2 18.0 9.5 9.9
Trade or apprenticeship 36.9 33.3 24.4 Note F: too unreliable to be published 12.6 Note F: too unreliable to be published
CEGEP or college 37.5 41.3 25.0 32.9 12.5 8.4
University degree 41.6 50.2 29.7 41.9 11.8 8.3
25 to 34 24.1 33.0 16.2 27.7 7.9 5.3
High school diploma or less 14.9 21.7 9.4 14.9 5.5 6.8
Trade or apprenticeship 26.7 21.0 19.3 Note F: too unreliable to be published 7.4 Note F: too unreliable to be published
CEGEP or college 23.6 32.6 14.5 26.0 8.5 6.0
University degree 31.4 39.7 21.5 35.4 9.9 4.4
35 to 44 39.1 42.0 25.5 33.2 13.6 9.1
High school diploma or less 30.0 26.6 18.8 17.4 11.2 9.2
Trade or apprenticeship 40.2 34.7 22.6 24.1 17.6 10.6
CEGEP or college 42.0 37.7 27.3 29.4 14.6 8.2
University degree 43.1 53.6 29.9 44.4 13.2 9.2
45 to 54 43.5 47.9 30.8 36.5 12.7 11.4
High school diploma or less 34.8 32.4 22.9 20.2 11.9 12.3
Trade or apprenticeship 42.4 39.6 29.6 31.6 12.9 8.0
CEGEP or college 47.9 52.2 33.4 41.7 14.5 10.6
University degree 51.1 60.2 38.7 47.6 12.4 12.6

It is a well-documented fact that young bachelor's degree holders continue to earn more, on average, than their counterparts with a high school diploma.Note 5 In addition to higher wages, do young university-educated workers enjoy better DB coverage than their less-educated counterparts?

The answer is clearly "yes". Young male and female university graduates (aged 25 to 34) had DB coverage rates (22% and 35% respectively) that were double the rate of those with a high school diploma or less (9% and 15% respectively).Note 6 In fact, multivariate analyses confirm that higher education was associated with better DB coverage for young graduates—male or female—even after controls were used for the type of industry in which young workers are employed.

Among women, higher education was also associated with better DB coverage in other age groups. Female university graduates aged 35 to 44 and those aged 45 to 54 were 27 percentage points more likely to be covered by a DB plan than those with a high school diploma or less education. Furthermore, better DB coverage persisted for female university graduates of all age groups even when controls for industry were used in multivariate analyses.

In contrast, a higher education level was not ubiquitously associated with better DB coverage among men of all ages. The cross-education differences in DB coverage noted among men aged 35 to 44 and those aged 45 to 54 in Table 2 (11 and 16 percentage points respectively) no longer persisted after controls for industry were used.

In addition to being more likely to be covered by defined benefit plans than their less-educated counterparts, university-educated workers tended to have more generous defined benefit plans. Of all university degree holders with DB plans, about 96% had plans where the pension formula was based on 'average best earnings' or 'final average earnings' (Table 3).Note 7

Table 3 Pension formula for current service for members of defined benefit plans, 2012
Table summary
This table displays the results of Table 3 Pension formula for current service for members of defined benefit plans Percentage of defined benefit plan members in plans based on, Average earnings, Career earnings and Flat benefits, calculated using percentage units of measure (appearing as column headers).
  Percentage of defined benefit plan members in plans based on
Average earnings Career earnings Flat benefits
percentage
All 86.2 3.8 10.0
By age group  
25 to 34 87.5 2.8 9.7
45 to 54 84.8 4.4 10.8
By education  
University degree 95.5 2.6 1.9
25 to 34 97.9 1.2 0.9
45 to 54 93.6 3.2 3.3
High school diploma or less 69.2 4.3 26.5
25 to 34 59.7 3.0 37.3
45 to 54 73.2 4.7 22.1
By occupation skill level  
Occupations usually requiring  
University education 97.1 2.1 0.8
College education or apprenticeship training 80.9 5.4 13.7
High school education and job-specific training 78.9 3.9 17.1
Some high school and on-the-job training 61.2 5.3 33.4

The corresponding proportion for defined benefit plan members with a high school diploma or less was significantly lower, at roughly 69%. Similar cross-educational differences in the generosity of DB plans were found for both workers aged 45 to 54 and those aged 25 to 34.Note 8 Such results support the fact that DB plans in occupations usually requiring a university education are based on average best earnings or final average earnings more often than occupations that usually require a high school diploma or less.

DB coverage rising with job tenure, regardless of age

Research has shown that DB plans tend to encourage workers to stay in their job to maximize their future pension wealth. Note 9Consequently, workers with longer job tenure should have relatively high coverage rates under DB plans.

This is indeed the case—42% of men and 57% of women with over 15 years of experience with their current employer were covered by DB plans in 2012 (Table 4). The corresponding numbers for men and women with less than five years of tenure were 15% and 21% respectively. These differences in coverage rates by DB plans across tenure do not merely reflect an age effect. In fact, the likelihood of belonging to a DB plan rises with time spent with the employer regardless of age.Note 10

Table 4 Pension coverage by tenure, age, gender and pension type, 2012
Table summary
This table displays the results of Table 4 Pension coverage by tenure Percentage of employees with, RPPs , Defined benefit RPPs and Defined contribution or hybrid RPPs (appearing as column headers).
  Percentage of employees with
RPPs Defined benefit RPPs Defined contribution or hybrid RPPs
Men Women Men Women Men Women
Age percentage
25 to 54 35.6 41.2 24.3 32.6 11.4 8.7
Less than 5 years of tenure 22.0 27.0 14.9 21.1 7.2 5.8
5 to 10 years 40.2 43.9 25.8 33.8 14.4 10.1
11 to 15 years 46.0 56.3 30.9 43.3 15.1 13.0
Over 15 years 56.4 68.7 41.6 57.1 14.8 11.6
35 to 44 39.1 42.0 25.5 33.2 13.6 9.1
Less than 5 years of tenure 24.8 26.7 16.3 21.0 8.6 5.7
5 to 10 years 47.2 46.4 29.0 34.9 18.3 11.6
11 to 15 years 50.7 59.2 35.0 47.3 15.6 11.9
Over 15 years 49.3 66.2 33.4 54.5 15.9 11.6
45 to 54 43.4 47.9 30.8 36.5 12.7 11.4
Less than 5 years of tenure 24.9 28.0 16.9 18.6 8.0 9.3
5 to 10 years 39.9 40.4 25.5 29.2 14.4 11.1
11 to 15 years 45.7 56.7 31.6 40.1 14.1 16.6
Over 15 years 60.7 70.0 45.7 58.3 15.0 11.8

In contrast with how pension wealth accumulates in DB plans, pension wealth in defined contribution or hybrid plans accumulates more smoothly over the life cycle.Note 11 These differences may help explain why coverage rates differ to a lesser extent by job tenure in these plans than they do in DB plans.

Coverage rates for all types of RPPs are higher in large workplaces

Because hiring and training represent a cost, employers may offer pension plans to reduce labour turnover and to defer compensation as a means of attracting more productive or highly skilled workers.Note 12 The degree to which they do so may differ by firm size for a variety of reasons. Small firms may have fewer financial resources available compared to large firms. Large firms may take advantage of economies of scale with the administration costs of pension plans. These arguments suggest that RPP coverage may increase with firm size—previous Canadian studies have confirmed this finding.Note 13 Yet whether coverage by both DB plans and other types of RPPs increases with the size of the workplace has remained unknown.

As expected, larger workplaces tend to offer DB plans as well as other RPPs more often than smaller workplaces. For example, about 46% of men employed in workplaces with over 1,000 employees were covered by DB plans in 2012, while 23% were covered by other RPPs (Table 5). The corresponding numbers for men employed in workplaces with at most 10 workers were 14% and 6% respectively.

Table 5 Pension coverage by gender, size of workplace and pension type, 2012
Table summary
This table displays the results of Table 5 Pension coverage by gender Percentage of employees with, RPPs , Defined benefit RPPs , Defined contribution or hybrid RPPs , Men and Women, calculated using percentage units of measure (appearing as column headers).
  Percentage of employees with
RPPs Defined benefit RPPs Defined contribution or hybrid RPPs
Men Women Men Women Men Women
percentage
All industries  
1 to 10 employees 19.5 13.4 13.7 8.4 5.9 5.1
11 to 50 employees 29.5 37.1 20.6 29.4 8.9 7.7
51 to 250 employees 39.3 50.6 27.2 40.6 12.1 10.1
251 to 1,000 employees 54.9 63.6 35.5 49.8 19.4 13.8
Over 1,000 employees 69.1 75.1 45.8 61.6 23.3 13.4
Excluding education, health care and social assistance, and public administration  
1 to 10 employees 16.2 10.3 10.4 4.9 5.9 5.4
11 to 50 employees 20.6 19.3 10.6 9.9 10.0 9.4
51 to 250 employees 30.8 28.3 17.7 14.8 13.2 13.5
251 to 1,000 employees 47.8 48.0 25.7 25.8 22.1 22.1
Over 1,000 employees 61.9 68.4 31.1 37.5 30.9 30.9

Even outside of educational services, public administration, and health care and social assistance industries, larger workplaces provided better DB coverage than other RPPs . Outside of these sectors, the difference in DB coverage between small and large firms was about 20 percentage points for men and 33 percentage points for women. Coverage rates under other RPPs also differed between small and large firms—by roughly 25 percentage points for both sexes.

Coverage rates are higher for Canadian-born women than for their immigrant counterparts

From the early 1980s to the mid-2000s, earnings differences between recent immigrants and the Canadian-born widened substantially.Note 14 While several studies have attempted to explain these growing earnings differences, relatively little attention has been paid to differences in RPP coverage for immigrants versus the Canadian-born.

Canadian-born male and female employees aged 25 to 54 had better DB plan coverage and, as a result, better RPP coverage, than their immigrant counterparts. For example, 36% of employed Canadian-born women were covered by a DB plan, compared with 24% of their foreign-born counterparts (Table 6). Among females, the difference was even larger among those who have entered the Canadian labour market recently, or, more specifically, between Canadian-born women aged 25 to 34 and immigrant women who spent less than 10 years in Canada. In contrast, such differences were not statistically significant among males.

Table 6 Pension coverage by immigration status, age, gender and pension type, 2012
Table summary
This table displays the results of Table 6 Pension coverage by immigration status Percentage of employees with, RPPs , Defined benefit RPPs , Defined contribution or hybrid RPPs , Men and Women, calculated using percentage units of measure (appearing as column headers).
  Percentage of employees with
RPPs Defined benefit RPPs Defined contribution or hybrid RPPs
Men Women Men Women Men Women
percentage
All employees aged 25 to 54 35.6 41.2 24.3 32.6 11.4 8.7
Canadian-born 38.7 44.8 26.3 35.8 12.3 9.0
Immigrants 27.1 31.7 18.4 23.9 8.7 7.9
Canadian-born age 25 to 34 26.0 37.5 17.4 32.1 5.7 5.4
Immigrants who lived in Canada less than 10 years 21.3 22.0 12.9 15.5 8.5 6.5

Part of the difference in DB and RPP coverage observed for women, however, is related to the fact that more immigrant women were employed in small firms and low-coverage industries than Canadian-born women. In fact, multivariate analyses show that firm size and industry of employment accounted for a significant portion of the differences between the Canadian-born and immigrants in DB and RPP coverage for women (between one-third and one-half).

Since both wages and pension coverage are higher in large firms and among highly educated workers, it seems to follow that highly paid workers are more likely to be covered by any type of pension than low-paid workers.

The data support this conjecture (Table 7). In 2012, more than one-half of paid workers in the top decile of the gender-specific wage distributions were covered by RPPs (54% of men and 73% of women)—at least five times the rates observed among their counterparts in the bottom decile—10% of men and 8% of women. Coverage rates under DB plans or other plans were also at least five times higher among paid workers in the top decile than among those in the bottom decile. These significant differences in coverage across wage deciles remained even after controls were used for workers' education levels and experience (bottom panel of Table 7).

Table 7 Pension coverage by gender, wage decile and pension type, 2012
Table summary
This table displays the results of Table 7 Pension coverage by gender Percentage of employees with, RPPs , Defined benefit RPPs , Defined contribution or hybrid RPPs , Men and Women, calculated using percentage units of measure (appearing as column headers).
  Percentage of employees with
RPPs Defined benefit RPPs Defined contribution or hybrid RPPs
Men Women Men Women Men Women
percentage
Hourly wage decile  
Bottom 10% 10.3 7.8 6.9 5.7 3.5 2.1
2nd decile 13.3 12.5 7.0 7.3 6.3 5.2
3rd decile 22.5 18.9 16.0 11.7 6.5 7.2
4th decile 30.3 38.0 19.1 26.2 11.3 11.9
5th decile 44.1 43.7 27.1 33.8 17.0 9.9
6th decile 43.4 54.1 28.7 39.0 14.7 15.1
7th decile 51.9 59.2 38.8 50.0 13.1 9.3
8th decile 63.6 71.1 44.8 59.2 18.8 11.9
9th decile 61.1 71.5 42.0 62.0 19.1 9.5
Top 10% 54.3 73.2 36.8 59.8 17.5 13.4
Hourly wage decile controlling for experience and education  
Bottom 10% 9.9 10.4 6.1 6.8 3.8 3.6
2nd decile 22.5 20.0 14.8 13.6 7.6 6.4
3rd decile 28.1 25.4 17.7 19.8 10.5 5.6
4th decile 31.6 41.3 22.3 30.8 9.4 10.4
5th decile 45.6 39.0 30.6 29.4 15.0 9.5
6th decile 49.7 54.1 32.2 44.6 17.5 9.5
7th decile 48.7 62.9 33.9 45.8 14.9 17.1
8th decile 53.9 65.9 38.5 56.3 15.4 9.6
9th decile 54.7 65.8 39.5 55.2 15.2 10.6
Top 10% 52.1 65.4 33.1 52.6 19.0 12.9

Conclusion

Until recently, no Canadian dataset combined information on both worker sociodemographic attributes and pension plan characteristics. As a result, the question as to which workers were members of which pension plans remained unanswered. Using data from the first wave of the Longitudinal and International Study of Adults, this paper fills this gap by showing how coverage by defined benefit pension plans and other pension plans varies by worker characteristic.

This study shows that, in 2012, women tended to have defined benefit plans more often than men because they are predominantly employed in education, health care, social assistance, and public administration. Even though young workers are generally covered by RPPs less often than their older counterparts―as a result of the decline in pension coverage observed over the last decade―those with a university degree were significantly more likely to be covered by DB plans than their counterparts with a high school diploma or less education. Highly educated workers also tended to benefit from more generous DB plans.

Along with highly educated workers, employees in large workplaces had better coverage, both in terms of defined benefit plans and other plans. The fact that highly educated workers and employees of large firms have both relatively high wages and high RPP coverage helps explain why coverage rates generally increase with wages.

Marie Drolet is Senior Researcher and René Morissette is Assistant Director in the Social Analysis and Modelling Division of Statistics Canada.

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