By Joel Kranc
It’s nothing new. Provinces in Canada have considered starting their own pension plans separate and apart from the Canada Pension Plan for years. In 2015 the Ontario government, under the Liberal Party, put forth a proposal for an Ontario Retirement Pension Plan to expand pension coverage initially to more than three million Ontarians. It failed.
A similar fate may be in store for the current Alberta government under Premier Danielle Smith of the UCP Party. After her election in the spring of 2023, Premier Smith asked her former finance minister, Travis Toews, to look at the viability of pulling out of the Canada Pension Plan (CPP) and creating an Alberta Pension Plan (APP).
The debate that has ensued is an interesting dichotomy of how Albertans really feel and how other pundits view the topic.
The Benefits of ‘Going it Alone’
Niels Veldhuis, president of the more conservative leaning Fraser Institute, says Albertans have had real issues with the federal government’s approach to the province’s number one industry (oil and gas) during a period when Alberta contributes significantly more to the country than it receives in return. The debate around creating an APP is “a recognition that Alberta contributes significantly more than it gets in return,” he says.
As for the benefits of creating an APP, Veldhuis explains, ”Alberta could go it alone and for a substantially lower contribution rate. Prior to the expansion of CPP, contribution was 9.9%. If Alberta were to go it alone with the same benefits, they could have had a contribution rate of 5.85% or 40% lower.
“Albertans would have more of their money, the same CPP benefits, save that money in other savings accounts, and would be much better off from a contribution rate,” he continues. “That’s the competitive thinking that Albertans are considering.”
Veldhuis also says that CPP is not a particularly low-cost pension plan. “There could be dis-economies of scale when pensions get larger. So yes, Alberta would take its portion of the CPP assets and manage those assets. They might set up something similar and it might be cheaper to have an APP than a larger CPP, he adds.”
But the population may not be on his or the premier’s side. A Leger poll of about 1,000 Albertans showed that only 21% of people were in favour of a provincial retirement plan — and that includes 33% of people who identified themselves as supporters of the UCP. Overall, 54% said they did not support leaving the CPP for a provincial plan.
Diminishing Returns
Counterpoints in the debate are coming from many sides, including heavy hitters like pension expert Keith Ambachtsheer, head of KPA Advisory Services, and Executive-in-Residence and Director Emeritus, International Centre for Pension Management, Rotman School of Management, University of Toronto. He says that there are three main reasons for Alberta not to have its own APP.
“The demographics aren’t going to stay the same over the next 10 to 50 years,” he notes. “In fact, because a lot of those higher-paid jobs are in the fossil fuel industry, and if we do go to net zero, there’s a significant possibility that the labour force — the demand for labour — will change materially over the next 10 or more years. In which case the assumptions on which these calculations were made will be wrong. It creates a demographic risk to the original APP proposal.”
Another reason has to do with sheer cost. “If you go through the mechanics of making the change, it would be a multi-year process, it would be very complicated, and it would be expensive.”
Finally, Ambachtsheer says the current Alberta government has a bit of a history of intervening in matters they shouldn’t be intervening in. “It is entirely possible that with an Alberta Pension Plan, they direct the assets to go into the oil and gas industry, which would be a double-disaster for people in Alberta 20 or 30 years from now.”
For his part, Veldhuis says that even if demographics diminish and you consider a 10% convergence over time, a materially smaller contribution rate of 7.2% would still occur in Alberta. “I don’t see that as a material risk,” he adds.
Interestingly, the CPP has already announced an expansion over a multi-year timeframe to increase the size of CPP payouts in the future. Future payments will make a higher percentage of retirement income than before. Previously, the CPP was meant to cover 25% of earnings, but the enhanced version will cover 33% of earnings. This could put a further kink in the argument of the APP supporters as benefits go up.
As it stands now, the premier has asked the president of the Treasury Board and current Minister of Finance Nate Horner to release a consultation paper that was made in consideration of creating an APP, and having a potential referendum on the issue. So far that paper has not been released and there is no specific time frame to do so. Stay tuned.
