A proposed SME tax credit could materially expand workplace plans and reshape retirement readiness
A new policy proposal from the C.D. Howe Institute puts a spotlight on one of the most persistent weak points in Canada’s retirement system: the lack of workplace plan coverage in the private sector, particularly among small and mid-sized employers.
Despite a comparatively strong public pension framework, millions of Canadians remain on their own when it comes to employer-sponsored retirement savings. The Institute estimates that roughly 9.1 million workers do not have access to any workplace retirement plan, a shortfall concentrated overwhelmingly in the private sector and among smaller firms.
While close to nine in 10 public-sector employees participate in registered pension plans, coverage in the private sector remains closer to one in five when measured narrowly – and still leaves a large gap even when broader plan types are included.
The commentary from authors Keitch Ambachtsheer and Alex Mazer argues that this coverage gap has real consequences for retirement outcomes.
Workers without access to employer plans are more exposed to inconsistent saving habits, higher investment costs, and behavioural biases that undermine long-term wealth accumulation. Research cited in the paper links the absence of workplace plans to lower retirement savings, weaker investment returns, and a higher likelihood of falling short of maintaining one’s standard of living in retirement.
At the centre of the proposal is a new federal incentive: the Small Employer Retirement Plan Tax Credit (SERPTC). Rather than mandating coverage, the authors advocate a “carrot-first” approach aimed at reducing the financial and administrative barriers that discourage smaller employers from offering plans.
Under the proposed design, the credit would have two main components. First, a set-up credit of up to $5,000 per year for the first three years would offset initial costs such as plan design, advisory services, governance, and employee education. Second, an employer contribution credit would provide up to $1,000 per eligible employee annually for employer contributions made to a newly established plan, also for up to three years. Together, these measures could cut the effective cost of offering a plan by nearly half for a typical small employer in the early years.
Importantly, the credit would apply across a wide range of plan structures. Eligible arrangements would include defined-benefit and defined-contribution pension plans, group RRSPs, deferred profit-sharing plans, group TFSAs, pooled registered pension plans, and voluntary retirement savings plans. The intent is to preserve flexibility while encouraging employers to choose solutions that fit their workforce demographics and cash-flow realities.
The fiscal impact, while meaningful, is framed as modest relative to existing retirement-related expenditures. Depending on uptake, the Institute estimates the program would cost between $1 billion and $2 billion over five years. In return, coverage could expand by approximately 125,000 to 500,000 additional workers, while significantly increasing the share of small and mid-sized employers offering retirement plans.
The paper emphasizes that awareness will be critical to the success of the credit, pointing to the advisor community as a primary channel for educating employers. Advisors who understand the mechanics of the SERPTC could play a pivotal role in helping small businesses reassess the affordability of workplace plans, while also expanding their own retirement plan practices.
The authors conclude that targeted incentives such as the SERPTC offer a more efficient and politically feasible path to improving retirement readiness than further broad-based benefit expansions. By lowering entry barriers for employers, the proposal aims to strengthen private-sector retirement outcomes, improve labour-market competitiveness for small firms, and ultimately reduce future pressure on public income supports.
