Many employees favour cash today over income tomorrow, which can undermine retirement financial planning.Prasong Maulae/iStockPhoto / Getty Images
Canadians covet their workplace pension plans, and employers offering them benefit by attracting and retaining talent. Yet, behavioural biases that lead workers to prioritize their current lifestyle can cause them to leave money on the table, a new report shows.
“The full value proposition of workplace-based retirement plans is too often underappreciated – at least until a person retires and becomes the beneficiary of the financial decisions they made over the course of their working career,” says the report released Thursday by the Pension Centre of Excellence (PCE) at the National Institute on Ageing (NIA).
This short-term thinking may also apply to some financial advisors, the researchers found.
The report, entitled “Understanding and Communicating the Value of Workplace Retirement Plans,” calls on pension plan providers to reframe how they communicate their workplace pensions to employees to help them understand the value.
Part of the effort involves helping employees overcome behavioural biases that push them toward short-term choices that favour cash today over income tomorrow, which the authors argue can undermine pension plan engagement and retirement financial planning.
“Workers face a complex system, limited feedback and psychological biases that tilt decisions toward short-term thinking and away from long-term security,” the report states. “At the same time, industry norms, framing conventions and outdated tools can reinforce these tendencies. The result is a hazy view of the value that workplace retirement plans provide.”
The report cites a 2025 NIA survey showing that 92 per cent of Canadians aged 50 and older described their defined-benefit (DB) pension as an important source of retirement income, and 66 per cent said it was income they couldn’t live without.
“We know that people really value it, so how can you help your younger self to better understand the role this is going to play for your future self so that you’re not leaving money on the table?” says Bonnie-Jeanne MacDonald, the NIA’s director of financial security research and lead author of the report.
Many workers are preoccupied with immediate financial pressures, the report says, and “workplace retirement plans may be perceived as a reduction in take-home pay rather than as a vital long-term financial asset.”
Fear of short-term market losses, meanwhile, may lead to overly conservative investments that reduce their long-term growth potential.
Financial advisors aren’t immune to short-term thinking and biases around workplace pensions either, says the report, which was co-written by PCE researchers Doug Chandler, Alyssa Hodder and Barbara Sanders.
For example, some advisors may recommend that clients who leave an employer take a commuted value for their pension rather than remaining in a DB plan.
“By portraying lifetime income as risky – that it only ‘pays off’ if you live long enough – some advisors may be inadvertently encouraging individuals to undervalue the protection it offers against longevity risk,” the report says.
Advisors may also have competing incentives that could affect their advice. The report notes that compensation models that tie fees and commissions to assets under management “can create structural tensions.”
It says fee-for-service and flat-fee advisory models “better align advisor and client interests around lifetime income planning.”
Beyond the ‘three pillars’
Workplace retirement plans are often technical, with features such as contribution matching, investment options, portability rules, survivor benefits, pension start dates and bridge benefits, the report notes.
Plan providers can improve uptake by better communicating the benefits and how they’re used, the report adds.
One suggestion is to move away from the “three pillars” message of retirement income that focuses on government programs such as the Canada Pension Plan (CPP) and Old Age Security benefits, workplace retirement programs, and private savings plans such as registered retirement savings plans and tax-free savings accounts.
Instead, the authors suggest recasting the conversation around two main functions – income foundation and spending buckets.
“At the end of the day, retirees will want to know how much lifetime income foundation they have, whether it comes from CPP or their workplace DB pension plan. And, how much do they have in their savings accounts, whether it came from a [defined-contribution pension] plan or their own personal RRSP,” Ms. MacDonald says.
“Breaking it down into these two categories and how they matter to retirees can help simplify retirement financial planning.”
The authors also suggest that providers highlight the intangible advantages of workplace retirement plans, including potential health benefits.
“Lifelong income does more than replace earnings; it reduces stress, promotes confidence and well-being, stabilizes families and lowers vulnerability to financial exploitation,” the report states. “These benefits matter deeply to retirees, yet they are rarely communicated to workers.”
The authors argue their solutions don’t require sweeping reforms or costly new programs, but rather improved, sustained communication strategies that align with how people think and make decisions about money and retirement.
“By changing the retirement income framework from an accumulation to a decumulation mindset; emphasizing the significant advantages of secure lifelong income; and equipping Canadians with higher-quality decision support tools, employers, plan sponsors and plan administrators can dramatically improve both understanding and appreciation of workplace retirement plans,” the report states.