Hard-won victory for RBC retirees reflects a bigger problem with private pension plans

Jim Laughlin might see his Royal Bank pension increase next year – for the first time in almost a quarter-century.

The 77-year-old, a retired asset sales senior manager, has been at the forefront of a long-time grassroots campaign with one goal: To get his former employer to agree to bump up payments for the more than 40,000 retired members of the Royal Bank Pension Plan.

RBC runs one of Canada’s largest private defined-benefit (DB) plans, the coveted, traditional type of pension that provides steady cheques for life. But any increases to those payments or one-off extra disbursements are at the bank’s discretion. And RBC hasn’t implemented any such adjustments since 2014, according to documents reviewed by The Globe and Mail. Even back then, the money went only to a limited group of pensioners.

Late last year, Mr. Laughlin went so far as to send RBC a shareholder proposal submission endorsing annual pension adjustments based on inflation. But the bank rejected it, first because it exceeded an official word limit and then later when it said a shortened version came in after its submission deadline. In January, Mr. Laughlin contacted The Globe about the pensioners’ struggle.

About two months after The Globe reached out to RBC for more information, the bank said that it would roll out a $50-million investment to increase payments globally for some retirees starting in 2026, an initiative it said had been in the works for months.

“We regularly review our pension plans against financial performance, the economic environment and market trends,” said Elyse Lalonde, an RBC spokesperson said via e-mail, adding that the money will also serve to create a fund to help retirees facing financial hardship.

Mr. Laughlin and many of his fellow pensioners are celebrating what they’re calling a win. But the fact that Canada’s largest bank hasn’t granted any cost-of-living increases over the past decade points to wider issues with the design of private-sector pension plans in Canada, some pension experts say.

RBC is no outlier. Industry data show the vast majority of large, non-unionized employers with DB pensions in Canada have provided no inflation indexation in the past 10 years. And a Globe analysis of what Canada’s big banks have done to help their pensioners through the latest bout of soaring living costs suggests RBC is likely in the middle of the pack.

The Bank of Nova Scotia and Toronto Dominion Bank have granted discretionary increases in the past four years, while National Bank of Canada beefed up pensions with one-off extra payments last year. The Globe found no evidence of adjustments at Canadian Imperial Bank of Commerce and Bank of Montreal since at least 2020.

The bottom line is that Canadians working in the private sector may find themselves entirely on their own when managing the impact of inflation through decades of retirement, even when they’re part of some of the plushest, healthiest company pension plans in the country.

As pensions go, members of the Royal Bank Pension Plan are among the lucky ones.

Less than 40 per cent of working Canadians have a pension, according to Statistics Canada data. And in the private sector, only around 40 per cent of those with a pension have a DB plan.

Companies that still offer pensions have largely stopped promising monthly cheques for life. Instead, many now help employees save for retirement by topping up their contributions and investing the funds, what’s known as a defined contribution (DC) plan. As the telltale name indicates, what’s defined is the money paid into the plan. How much workers get in retirement depends on the size of the contributions and investment performance.

In Canada, RBC closed its main DB plan to those hired after the end of 2011 and now offers a DC plan.

Mr. Laughlin acknowledges his own good fortune as the recipient of what he said is a generous DB pension. But his concern, he said, is for RBC’s lower-income pensioners and the impact that inflation has had on their standard of living.

“There are pensioners who are close to living below the poverty line, and even one is too many. We just can’t have that,” he said.

In Red Deer, Alta., Brenda Roy, who turns 76 this month, worked at RBC for 38 years before retiring nearly two decades ago. She collects about $455 a month from the company’s DB plan – the same amount she received when she retired. That, alongside government benefits and a small pension from her late husband, adds up to $2,700 a month.

Rent alone takes up $1,778, leaving little room for anything else. As inflation sent costs soaring since 2021, she’s cut out pedicures, stopped buying new clothes, and now only purchases bruised produce and cheaper cuts of meat, she said.

With RBC now promising to bump up some pensions, she’s hoping for an adjustment that will at least help with rent, which has climbed twice in the past two years.

“It has gone up each year and I’m expecting it again in May when my lease ends,” she said. Any pension increase would definitely help, she added.

It’s unclear, though, who exactly will get RBC’s promised pension boost. The bank said it will buoy pensions both in Canada and in other countries where RBC has DB plans, with increases doled out based on pensioners’ length of service and years since retirement.

But RBC didn’t share specific details on who will qualify for the pension increases or the financial aid from the hardship fund, saying it is in the process of communicating the changes.

What’s certain is that the pension increase is entirely voluntary, as is typical in the private sector. Only 13 per cent of Canadian workers with corporate DB pensions are entitled to automatic cost of living adjustments, according to StatsCan.

Even in the public sector, where pensions that provide a degree of inflation protection are more common, plans that that promise to fully match cost-of-living increases are becoming rarer.

Still, ballooning living costs over the past four years raised expectations among some private sector pensioners that their former employers would step in to help even if they didn’t have to. Feeding those hopes was also the fact that, after years of solid market returns and a run-up in interest rates, many corporate pension funds in Canada are now in a solid financial position.

As of the end of March – before the tariff-fuelled market gyrations that started in April – pension consulting giant Mercer Canada found that, among its clients, DB plans had a median solvency ratio of 122 per cent.

The solvency status of a plan is the ratio of its assets to its liabilities, measured as the estimated total cost of immediately paying out all the benefits the plan has promised. A fully funded plan has a ratio of 100 per cent. Plans with a ratio of more than 100 per cent have a funding surplus, while plans under 100 are not fully funded.

The Royal Bank Pension Plan has been in a surplus funding position since 2020, according to documents about the plan viewed by The Globe. As of its last actuarial valuation, the plan was 122 per cent funded on a solvency basis as of the start of 2023.

In his shareholder proposal, Mr. Laughlin pointed to the plan’s funding surplus as a reason for the bank to allow annual pension adjustments.

But neither the recent bout of inflation nor the good financial health of many of Canada’s corporate DB plans appear to have translated into a flurry of discretionary pension increases.

A Mercer survey conducted in 2023 shows that, out of 83 larger, private sector, non-unionized pension plans, 64 plans, or 77 per cent, had not granted any indexation in the Past 10 years.

Among the big banks, pension increases have been more common, with at least three of the six financial institutions providing some adjustments between 2021 and 2024, according to documents seen by the Globe and information provided by the banks.

The Bank of Nova Scotia granted discretionary increases in 2021 and 2022 to all members of its Canadian DB plan who retired prior to 2020. In total, over the two-year period, the pension increases ranged from 1 per cent to 4 per cent, depending on the pensioner’s retirement date.

Toronto-Dominion Bank provided at least one increase of 2 per cent to some members of The Pension Fund Society, one of its two main DB plans in Canada, in 2024.

National Bank of Canada sent all retirees and surviving spouses a lump-sum payment of about 8 per cent of their annual pension in 2024, with those who retired during that year receiving an adjusted amount.

At the Canadian Imperial Bank of Commerce, the only one of the big banks to have kept its defined-benefit plan open to new hires in Canada, at least some pensioners have not received any discretionary increases or ad-hoc payments since at least 2020, according to evidence reviewed by The Globe.

Among defined-benefit pensioners of the Bank of Montreal, at least some retirees have received no increases since 2020, while others have seen no adjustments since 2017, according to documents seen by The Globe. The bank did not directly respond to a question about whether it has implemented increases over the past four years.

Sebastien Betermier, a professor of finance at McGill University, said he wasn’t surprised to see that the big banks don’t seem to have been comparing notes on pension increases, resulting in vastly different stances among similar, large employers in the same industry.

Decisions about discretionary payment adjustments can vary widely depending on who happens to sit on the board of trustees administering the pension plan, Prof. Betermier said. And once a board establishes a history of not providing increases, it can be tricky to deviate from it, he said.

“If you have a track record of never providing indexation, you might have a harder, bigger hurdle to decide to index.”

The fact that many large employers have done little – or nothing at all – to soften the impact of inflation for their retirees speaks to flaws with the design of many corporate pension plans in Canada, said Keith Ambachtsheer, director emeritus of the International Centre for Pension Management at the University of Toronto’s Rotman School of Management.

Even in the public sector, employers have struggled to take on the full financial risk of protecting retirees from living costs increases, he said.

But he points to pensions that have made indexation contingent on the funded status of the plan as a fair compromise. Pensioners can count on payment adjustments when such increases don’t compromise the long-term financial health of the plan.

It’s a solution that has been adopted by public sector behemoths such as the Ontario Teachers’ Pension Plan, as well as by some multi-employer pension plans, such as the CAAT Pension Plan, which serves both public and private employers.

It means that employers and employees paying into the plan share with retirees the financial risk that future living cost increases represent, Mr. Ambachtsheer said. When financial conditions allow, the plan pays up. If there is a funding shortfall, retirees must manage with reduced or no adjustments.

But such a setup has generally emerged in plans with a board that is mandated to consider the interests of both working and retired plan members.

In many corporate plans, by contrast, there is no formula or agreement on when increases should be granted, he said.

“Decisions were left, basically, to the employer,” he said, “and a lot of them decided not to do inflation updates.”