There was a time when retirement planning in Canada was fairly simple: you worked for many years, reached retirement age and counted on a reliable employer pension to provide steady income. Those days have largely disappeared. Over recent decades, fewer Canadians have access to workplace pension plans, and the nature of employer-sponsored retirement income has shifted, creating new challenges for people nearing or planning for retirement.
Workplace pensions once formed the backbone of retirement security for many Canadians. Over the 30 years between 1989 and 2019, the share of Canadian employees covered by registered pension plans fell from 43% to 37%, according to the federal Office of the Superintendent of Financial Institutions (OSFI). That overall decline masks sharper shifts beneath the surface: defined benefit (DB) plans—long seen as the gold standard—have largely held on in the public sector but have been steadily converted or closed in the private sector.
Where did all the employer pension plans go?
Employers have reduced their exposure to long-term pension obligations for several reasons, including rising costs, the investment risk associated with DB plans, and an increased reliance on contract or gig workers who are not eligible for traditional benefits. Between 1989 and 2019, enrollment in DB plans plunged from 85% to 39%, while participation in defined contribution (DC) plans dropped from 30% to 17%. Many employers have moved toward DC, hybrid or other arrangements that shift risk from the company to the employee.
As a result, Canadians must increasingly rely on personal savings and investment accounts to replace what employer pensions once provided. That transition raises important questions: How will retirees generate steady income? How can they preserve capital for longer life spans? And how can they do so in a tax-efficient way?
Replacing pensions with savings and investments
Some policy changes and financial-product innovations have helped offset the drop in employer pension coverage. In 1990 the federal government raised the maximum annual RRSP contribution rate from 10% to 18% and began indexing contribution limits, allowing people to save more as incomes rose. Today, the annual RRSP contribution limit is well into the tens of thousands of dollars.
Other reforms relaxed rules on holding foreign investments within RRSPs, and the introduction of the tax-free savings account (TFSA) in 2009 created an additional vehicle to grow wealth tax-free, with tax-free withdrawals. For many Canadians, a combination of RRSPs, TFSAs and non-registered investments now forms the primary retirement-income toolkit.
Still, these opportunities are not a cure-all. More employers are using contract or freelance arrangements and are less likely to offer benefits such as RRSP matching. Market volatility, changing interest rates and bouts of inflation make it difficult to forecast future portfolio growth, complicating retirement planning for millions. The result is greater responsibility on individuals to assemble reliable, long-lasting income streams from their savings.
Creating an income stream in retirement
Generating retirement income from investments requires thoughtful strategy. One approach used by some investment managers blends careful equity selection with option-based income enhancement to produce steady distributions while seeking total return.
First, the approach emphasizes sectors and companies with sustainable, long-term prospects—such as health care, utilities and technology—and selects businesses with strong dividend histories and resilient cash flows. Diversification across sectors, sub-sectors and geographies helps reduce concentration risk and smooth returns over time.
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Second, some funds use a covered call strategy to enhance yield. Covered call writing involves selling call options on holdings to collect premiums, which are then distributed to investors as income. This technique can increase monthly cash flow and, in certain non-registered accounts, may produce favourable tax treatment because a portion of the option income can be treated similarly to capital gains rather than ordinary interest.
What is covered call writing?
Covered call writing generates extra cash flow by selling call options on stocks the fund already owns. Call-option ETFs—or equity-income ETFs that write covered calls—collect option premiums and distribute that income to investors, which can result in higher monthly payouts and reduced downside in volatile markets.
There is a trade-off: selling calls can cap upside if the underlying stocks rise sharply, because the buyer of the option may exercise their right to purchase shares at the strike price. To manage that trade-off, managers typically limit how much of the portfolio is subject to options writing—for example, restricting covered call exposure to a defined percentage of holdings.
One practical example is a fund focused on leading global brands that selects companies based on market share, valuation metrics and dividend consistency. Combining quality equity selection with disciplined covered-call writing aims to deliver both capital growth and steady monthly income for investors.
When putting together a retirement income plan, simplicity and transparency matter. Investors should understand what they own and how their investments generate income. Clear reporting, understandable holdings and accessible explanations of strategies make it easier for retirees to feel confident about their finances.
Further reading on investing
- Ready for take-off: Is now a good time to invest in a travel ETF?
- What does high inflation mean for your retirement savings?
- How to find and invest in market leaders
- Three sectors to consider when the stock market is volatile
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