Human behaviour and framing critical in retirement benefits utilisation

A recent report warns that Canadian workers are routinely undervaluing their workplace retirement plans because of how employers and plan sponsors communicate them — and that this is happening despite retirees saying they “couldn’t live without” that income.

Currently, more than nine in ten Canadians aged 50+ who receive defined benefit (DB) pension income consider it an important source of household income, reports the National Institute on Ageing (NIA).

Two‑thirds say it is essential, “something they couldn’t live without.” Yet during their working years, many employees opt for higher cash pay, lower contributions or lump sums instead of lifetime pensions, according to the report.

“Older adults clearly recognise the value of workplace retirement plans, yet this appreciation often comes only in hindsight,” the NIA report states. “Employers, plan sponsors and administrators struggle to help those who are still working to see what retirees now understand.”

But only 33% of non-retired Canadians have a retirement plan and savings, and just 11% know how much annual income they will need in retirement, according to a previous study from IG Wealth Management.

Behavioural biases and cautious communication

The NIA argues that the problem is less about raw information and more about human behaviour and framing. It says “behavioural and psychological biases make it hard to prioritise long‑term benefits over immediate financial demands,” even for workers who say lifetime financial security is their top retirement goal.

The report also highlights how employer communication practices can unintentionally reinforce short‑term thinking. Employers, wary of legal risk, often take a “minimum compliance” approach to pension communications.

Courts have held that employers have a “special responsibility” when communicating about pension benefits and may be “bound by statements that were made in communications materials that were not intended to have legal effect,” notes the NIA. In response, many HR and plan administrators have tried to be as neutral as possible, the report states.

According to the NIA, genuine neutrality is not possible.

“The idea that any individual or organisation can present choices neutrally without influencing behaviour is a myth,” the report states, noting that defaults, wording and the order in which options appear all influence employee decisions.

At the same time, the institute notes that “employees perceive their employer as a trusted source of information,” with 80% of Canadians wanting financial education at work. That combination of influence and trust, the NIA says, makes HR a key lever in shifting employee behaviour.

Canadians now believe they need an average of $1.7 million to retire comfortably, but more than one‑third doubt they will reach that goal, according to a separate study from the BMO Financial Group.

A different way to frame plans

A central recommendation from the NIA is to move away from an accumulation‑focused narrative that spotlights balances and returns, and towards a decumulation frame that centres on guaranteed income and spending power in retirement.

“Retirement isn’t about how much you have; it’s about how much you can spend securely for the rest of your life,” the report says.

To support this, the NIA proposes a Retirement Income Framework that reclassifies retirement resources by function rather than by provider:

• An Income Foundation of predictable, lifelong monthly income for routine expenses (CPP/QPP, OAS/GIS, DB pensions and annuities).

• Spending Buckets of flexible assets for non‑routine or unexpected expenses (RRSPs/RRIFs, TFSAs, home equity and other savings).

By focusing on what income does for people day to day, the framework is intended to “reduce mental effort, encourage long‑term thinking and increase engagement,” and to make the role of the workplace plan more concrete and personally relevant, notes the NIA.

Key benefits for employees and their families

The NIA also urges employers to highlight what it calls the “5 key benefits of retirement income security”, many of which rarely appear in benefits brochures:

Employers, plan sponsors and administrators should “help plan members understand not only the parameters of secure retirement income (‘how much can I expect to receive and when’), but also its emotional, health and social value,” according to the NIA.

Preparing workers for retirement

Here’s how employers can help prepare workers for retirement, according to Citations Canada:

1. Initiate retirement conversations early – Proactively invite employees to discuss their future retirement plans well before they intend to leave. Normalise these discussions so employees feel safe talking about timelines, readiness and career goals. Use these conversations to inform succession planning and workforce forecasting, reducing disruption when they do retire.

2. Provide retirement information and tools – Compile and share a clear package of resources: contact details for local retirement and financial professionals, links to your benefits provider’s retirement calculators, guides and webinars, and any internal FAQs. Ensure employees know where to find these tools and how to use them so they can make informed decisions and prepare with confidence.

3. Build structured knowledge‑transfer processes – Ask retiring employees to document critical processes, contacts and workarounds, and to mentor successors where appropriate. Formalise this through job‑shadowing, overlap periods and checklists to ensure institutional knowledge remains within the organisation and new staff gain the context they need.

4. Create an individualised transition plan – Work with each retiring employee to draft a written transition plan that includes key dates, shifting responsibilities, handover milestones and exit formalities. Where possible, offer flexible options such as phased reductions in hours or short‑term post‑retirement consulting arrangements to suit both organisational needs and the employee’s preferences.

5. Formally recognise and celebrate retirees – Establish clear practices for honouring retiring employees, such as retirement events, personal appreciation letters, public acknowledgements and appropriate gifts or awards. Use these moments to highlight their contributions, reinforce your culture of recognition and show remaining employees that long service is valued.

Manulife notes that if your employees are unsure of where they stand financially, helping them prepare for retirement can potentially result in positive outcomes for your business by:

• Reducing employee stress

• Improving employee wellness

• Boosting productivity

“As a plan sponsor, you’re in a position to encourage your plan members to think about the financial aspects of living in retirement,” says the insurer. “Most employees trust the advice and recommendations provided by their employers related to financial products, services or organisations.”