Overall retirement savings boosted by workplace pensions: study

The crowding-out of private saving by pensions is much smaller for workers with weaker histories of saving in retirement accounts

By: James Langton
December 21, 2015 December 21, 2015
11:50

The availability of workplace pensions cuts RRSP contributions in half, but doesn’t fully displace them, according to a new paper from Statistics Canada.

StatsCan published a paper on Monday that examines the impact of workplace pensions on private savings.

The paper finds that registered pension plans (RPPs) partially crowd out private savings. However, overall retirement savings is boosted by the existence of workplace pensions.

Among workers with annual earnings near the Canadian average, a $1.00 automatic increase in RPP contributions results in an average reduction in RRSP contributions of $0.55, thus increasing the sum of RPP and RRSP contributions by an average of $0.45 across workers with different propensities to save.

“Some substitution is occurring between the two plans but that there may still be a role for employer-assisted saving, since one-half of the automatic change in pension wealth passes through into greater total savings,” the StatsCan paper says.

In addition, the research found that the crowding-out of private saving by pensions is much smaller for workers with weaker histories of saving in retirement accounts.

“Employer sponsorship and other forms of automatic saving may, therefore, matter a great deal in helping more vulnerable groups save for their retirement,” the StatsCan paper adds.