Pension plans play an important economic role by distributing billions of dollars annually to retirees, who then spend this money in the economy while enjoying a certain level of financial comfort.

Businesses providing goods and services, in turn, purchase products and services from various suppliers, who do the same with their own suppliers, and so on. Pension plans thus have a multiplier effect on the economy, which can be assessed through economic models that provide valuable insights into the number of jobs created, gross domestic product growth and tax revenues.

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At the national level in Canada, public sector pension plans generated $21 billion in revenue for federal and provincial governments in 2021. These plans supported 877,100 jobs and contributed to 3.6 per cent of Canada’s GDP. Needless to say, these plans carry significant weight, even without factoring in private sector pension plans.

Canadians are well aware of the link between pension plans and the economy. More than three-quarters of Canadians believe that today’s worker-funded pensions will be the driving force of tomorrow’s economy and that, without high-quality plans, the economy will suffer. By paying benefits to its recipients, the Canada Pension Plan and the Quebec Pension Plan also create jobs through beneficiary consumption, increase GDP and generate tax revenues for various levels of government.

According to recent actuarial reports, the base CPP plan will begin paying out more in benefits than it collects in contributions starting in 2026. From that year onward, and for all subsequent years, the CPP will represent a net injection of money into the Canadian economy. For example, by 2040, the outflows from the base CPP will exceed contributions by roughly $10 billion.

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The social impacts of pension plans are also significant. Retirees with defined benefit plans report better health satisfaction, experience less stress, enjoy more leisure activities, are more engaged in their communities and require fewer health-care services compared to individuals without a pension plan or those with defined contribution plans. This improved life satisfaction of retirees with defined benefit plans can be quantified. For some public sector plans in Alberta and the Ontario Municipal Employees Retirement System, this value is estimated at roughly $12,750 per retiree.

Pension plans also have positive impacts on the financial system. The counter-cyclical investments of pension funds, which have a very long-term investment horizon, contribute to financial market stability. This observation holds true in both developed and emerging economies. Studies have shown that Canada’s largest pension funds contribute similarly to the stability of Canada’s financial system.

For pension plan sponsors and human resources departments, understanding the positive impacts of pension plans on businesses, the overall economy, and society can be highly beneficial.

Riel Michaud-Beaudry is a policy analyst at the Observatoire de la retraite, a project of the Institut de recherche en économie contemporaine.