Alberta to debate Canada Pension Plan, says it deserves half of fund if it leaves

EDMONTON — Alberta’s premier fired the starter’s pistol Thursday for a provincewide consultation on whether to quit the Canada Pension Plan while releasing a report that estimates the province deserves more than half CPP’s assets.

The third-party report says Alberta should get $334 billion, or 53 per cent of the national retirement savings program, if it leaves in 2027 following the required three-year notification period.

Danielle Smith says the report found Albertans could save up to $5 billion in the first year of an Alberta Pension Plan.

Such a withdrawal could lead to “quite modest” contribution hikes in other provinces, the premier said, but the goal is to help Albertans and to tell Ottawa to stop taking for granted Alberta’s outsized contribution to the national purse.

“We want to have a better, constructive relationship with the rest of the country, and this begins the conversation,” Smith said in Calgary.

“I would hope people would develop an understanding of how difficult it is when you’ve got a small-population province like Alberta being asked to subsidize the rest of the country, as we do on so many programs.

“Many of these federal programs are stacked against us, and this one, I think, shows how dramatically stacked against Albertans it is.”

Smith said she personally favours a provincially run nest-egg fund and promised legislation this fall that “derisks” it.

“Your pension is safe. It will be the same or higher. Your premiums will be the same or lower,” said Smith.

Federal Finance Minister Chrystia Freeland declined to comment until she is briefed on Alberta’s proposal, but she called the CPP a “crown jewel” envied around the world.

“The CPP ensures that our parents and all of us can have a safe and dignified retirement,” said Freeland. 

Alberta Opposition NDP Leader Rachel Notley said Smith’s United Conservative Party government wants its hands on Albertans’ pensions.

“Danielle Smith took the first step in her long-term plan to steal your pension,” Notley said.

“She did it by releasing a report riddled with fake numbers. And she now plans to spend your money campaigning to convince you it’s a good idea. 

“If they can extract that much money from the Canada Pension Plan, they will kill it all across the country, not just here.”

If Alberta leaves, it would be the first province to quit the CPP. All provinces and territories are part of it except Quebec, which didn’t join after it was set up in 1965.

The report, compiled by pension analyst firm Lifeworks, notes its 53 per cent calculation is “significantly higher than Alberta’s representative population in the CPP, which is about 15 per cent.”

“(But) due to Alberta’s younger population, higher pensionable earnings, and higher employment rates, contributions by Albertans to the CPP have historically exceeded the benefits paid to Albertans.”

The CPP funding rules were overhauled in 1997 and again in 2016, likely leading to questions over how best to piece together who put in what and who deserves how much.

Michel Leduc, head of public affairs with the CPP Investment Board, said it respects the right of any province that wants to leave but “can’t find any legal or actuarial reasons” that support the report’s $334 billion figure.

“We believe that the framework would see a claim that is much closer to what Alberta has contributed to the Canada Pension Plan since inception, and that’s not 53 per cent. That’s closer to 16 per cent.”

University of Calgary economist Trevor Tombe said the Lifeworks model is based on a hypothetical payout tied to one interpretation of the funding formula. He said his calculations come in at 20 to 25 per cent of the total CPP pool due Alberta.

The report’s promise of big benefits and lower contributions hinges on getting that $334 billion, Tombe said, but it isn’t realistic.

If its formula is applied to Alberta and Ontario, those two provinces would be entitled to 113 per cent of the funds.

The report estimates the price of setting up the Alberta plan to be between $100 million and $1 billion, depending on how much the province piggybacks on the CPP mechanisms. 

The cost of implementing the investment arm of the Alberta plan would be another $75 million to $1.2 billion, again depending on how much the province taps into existing structures and expertise.

The future, says the report, suggests short-term windfalls tapering off as Alberta’s population ages and reverts closer to the national mean. 

The province would have to change legislation, amend employment laws that touch on the CPP and negotiate pension agreements for Albertans working elsewhere.

It would have to decide who runs the Alberta plan and what its goals would be: strict return on investment or, as in Quebec, whether investment managers would also consider investments that contribute to provincial economic development. 

And then there is Alberta’s roller-coaster economy and its comparatively small population of 4.4 million.

For decades, the only constant in Alberta has been wide swings in budgets, with years of eye-popping multibillion-dollar surpluses, punctuated by years of staggering multibillion-dollar deficits, all linked to the vicissitudes of oil and gas prices.

Alberta has emerged in recent years from a deep trough of red ink back into big-ticket surpluses, and the report acknowledges the future is tough to predict.

A government pension panel led by former provincial finance minister Jim Dinning is to hold information sessions and solicit feedback through the spring.

The panel would then deliver a report about whether it believes Albertans want the issue put to a vote.

If so, Smith said there would be a referendum and a majority of Albertans would have to give the OK.

The report has been promised for years by the UCP government. Its Fair Deal panel toured the province and in 2020 recommended pursuing its own pension plan.

A poll that accompanied the Fair Deal panel report, and public surveys since, indicate a majority of Albertans want to stay with the CPP. 

This report by The Canadian Press was first published on Sept. 21, 2023. 

— With files from Colette Derworiz in Calgary, Nojoud Al Mallees in Ottawa and Ian Bickis in Toronto

Dean Bennett, The Canadian Press