Improving Canada’s Pension System: Past Accomplishments and Future Challenges

From: Keith Ambachtsheer 

To: Canadian pension observers 
Date: October 15, 2026 
Re: Improving Canada’s Pension System: Past Accomplishments and Future Challenges

Keith Ambachtsheer has been at the forefront of Canadian pension policy for 40 years and is a central figure in the development of the Maple Model of public worker pensions, which is now imitated around the world. In this special Intelligence Memo, he reflects on that work, and what remains to be done in Canada’s pension ecosystem.

It was Peter Drucker’s 1976 book The Unseen Revolution that got me interested in pensions in the late 1970s.

Drucker’s claim that workers would become owners of the means of production through their pension funds, and not through a Marxist revolution, intrigued me. He asserted that pension funds in the 1970s were ill-equipped to deal with the resulting responsibilities, and that major changes in pension design and management were needed.

Some of these ideas would influence myself and others, spawning a series of innovations to Canada’s pension system to make Canada a model of pension system design, in some respects. However, in other respects, namely the downward trend in pension coverage for private sector workers, is a major problem for Canada to address. 

In the 1970s, two words expressed Drucker’s concern with pension management organizations: “Legitimacy” and “competence.” The former focused on the fiduciary duty to act solely in the best interest of plan members, and the latter on the reality that pension funds require the same effective organization design and governance as any other organization. To his credit, Ontario Treasurer Robert Nixon created the Rowan Task Force in 1986 to study public sector pension design and governance in Ontario. I was a consultant to the task force.

The resulting report followed Drucker’s ideas closely, leading to the creation of Ontario Teachers’ Pension Plan in 1989. Teachers’ in turn became the model for other major Canadian pension institutions such as CPP Investments and CDPQ. Collectively, these new institutions came to be called The Canadian Pension Model by The Economist. It lauded the model for its value-creation driven by its clear legitimacy and competence features.

Another Druckerism came into play here: “What gets measured gets managed.” This led to my involvement in the creation of CEM Benchmarking in 1991. Today, CEM is a 50-person organization, the dominant ‘value for money’ benchmarker in the global pensions space, covering 400 participating pension organizations around the world managing a collective $16 trillion in retirement savings. CEM benchmarking results confirm the superiority of the Canadian pension model in generating value for money in both the investment and benefit administration functions.

A good example of the value of the legitimacy and competence features in Canadian model organizations is how Teachers’ dealt with creating greater sustainability in its defined-benefit plan. Rather than have the sponsor bear the increasing burden of all the investment risk in the plan, why not share it with plan members in the form of conditional inflation protection?

First adopted more than 20 years ago, this risk-sharing feature has since been adopted by many DB plans. The UBC pension plan took a different route to sustainability by creating separate return generation and lifetime pension pools. This effective structure is now picking up steam, with lifetime pension pools being named Variable Pay Life Annuities (VPLAs).  

This two-pot model was recently adopted by Australian Retirement Trust, one of Australia’s largest pension organizations. VPLAs solve the traditional defined contribution pension plan design problem, where plan members either run the risk of running out of money before they die, or of underspending in retirement to ensure they don’t. By pooling longevity risk, VPLAs create a lifetime pension payment stream that DC plan members can start to purchase as they age.

In 2004, the founding of the International Centre for Pension Management (ICPM) greatly facilitated broad-based innovation capabilities in the Canadian and global pensions sectors, including the broader adoption of VPLAs. Today, ICPM has 50 pension fund member organizations from around the world managing a collective $9 trillion. Together with the Rotman School of Management at the University of Toronto, ICPM sponsors the Pension Governance Education Program (PGEP), which has been educating pension plan board members from around the world since 2011.

In sum, the last 50 years has seen the growth and development of key, well-functioning and well-governed aspects of Canada’s pension income system come in place. Looking ahead, what is the largest remaining gap in Canada’s retirement income system?

Without doubt, it is the fact most Canadian private sector workers are still not members of a modern, well-designed occupational pension plan to supplement their modest OAS/GIS and CPP/QPP pensions.

Alex Mazer and I recently wrote about this in a C.D. Howe Institute paper that argued for a special tax credit, modeled in part on a US initiative for small businesses.

Canada’s retirement income system currently ranks No. 12 out of 52 countries, with its major flaw being that less than 20 percent of Canada’s small and midsize enterprises sponsor an occupational pension plan. This lack of coverage is a major source of under-saving for retirement by some 9 million of Canadian private sector workers.

The simplest solution? Offer small and medium employers a modest tax credit to initiate an occupational pension plan for their employees. The proposal has had a lot of success in the United States, where a similar credit is in effect, and it is now under active discussion in Ottawa.      

In the last 50 years, pension design and management in Canada have improved materially. But there is more work to be done.

Keith Ambachtsheer is executive-in-residence and director emeritus at the International Centre for Pension Management at Rotman School of Management. 

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The views expressed here are those of the author. The C.D. Howe Institute does not take corporate positions on policy matters.