Alberta premier peddling long-term risk along with pension misinformation

Hey there, time traveller!
This article was published 30/10/2023 (732 days ago), so information in it may no longer be current.

Albertans have a lot more to lose than Manitobans — or any other Canadians — if they get conned into ditching the Canada Pension Plan in favour of a smaller, riskier provincial pension scheme.

Alberta Premier Danielle Smith is hoping to convince her province that creating its own pension plan would result in higher benefits and lower contributions for Alberta residents. She claims, falsely, Albertans are paying more into the plan than they’re receiving.

Individual Albertans pay the same CPP rates and receive the same benefits other Canadians do. Like all Canadians, the amount they pay and collect in retirement is based on their individual circumstances. The only exception to that is in Quebec, which has its own Quebec Pension Plan. Quebecers pay higher contribution rates than the rest of Canada, mostly because they have an older demographic. They miss out on the benefits of a larger, less-volatile and more demographically balanced plan such as the CPP. Albertans would, too, if they decide to go it alone.

Alberta has a younger population than the national average, higher net migration and greater earnings than the rest of Canada. As a result, residents pay more into the CPP per capita than the national average. But that is balanced off with higher benefits at retirement.

In some cases, those benefits are collected by people who worked in Alberta but retire in other provinces. The contributions are credited to Alberta but the benefits paid out show up elsewhere. It can give the false impression that Alberta isn’t getting its fair share of benefits. Smith is misrepresenting those facts for her own political gain.

It’s also deceptive to suggest Albertans would be better off under their own plan. In the short term, Alberta’s younger population, higher earnings and strong migration may produce marginally better pension returns and/or lower contributions. But there are long-term risks that go along with that, as University of Calgary economics professor Trevor Tombe points out in a well-researched paper on the subject.

Tombe crunched the numbers in his recent paper and found that while a separate Alberta pension plan could result in slightly lower contribution rates for Albertans, the benefits would be marginal.

It would depend mostly on what portion of the CPP’s $600 billion in pension assets Alberta would receive if it left the national plan and started its own. That’s the crux of this entire debate. It’s also the reason Smith is getting cold feet on calling a referendum on the matter.

The Alberta government claims if it left the CPP, it would be entitled to just over half the pension plan’s assets, which is an absurd assumption. As Tombe explains in his research paper, the legislation that governs the CPP is vague on how assets are split if a province leaves the plan. If Alberta’s interpretation were accepted and, hypothetically, Ontario also left the plan under the same assumptions, CPP’s pension assets would be completely depleted. It’s clearly not the correct interpretation since it would undermine the statutory purpose of the pension plan.

A more reasonable interpretation would likely consider what a province would need to meet its future obligations if it left the plan. Using that reading of the legislation, Tombe estimates Alberta would be entitled to about 20 to 25 per cent of CPP’s assets. Under that scenario, Albertans may be marginally better off in the short term, but not by much, Tombe argues.

In the long term, changing factors such as demographics, migration patterns and earnings could materially impact contribution rates in a smaller, more volatile provincial plan (just as it has in Quebec). Those risks are real, especially when considering the impact of an increasingly decarbonized world on Alberta’s oil-based economy.

The only way Smith’s plan works is if the rest of Canada agrees to hand over more than half of the CPP’s assets to Alberta, which ain’t gonna happen. Smith knows that and she’s now playing politics by demanding “a number” from the federal government on the asset split. It’s pure political theatre designed solely to advance her Alberta vs. Ottawa crusade.

The Alberta premier is right about one thing: if Alberta does pursue this, the asset split would likely be decided by the Supreme Court of Canada. But the high court would not likely rule in Smith’s favour. It would almost certainly land on a middle-ground position that would allow Alberta to meet its future pension obligations without imperiling the CPP for the rest of Canada — something closer to Tombe’s analysis.

Under that scenario, the rest of Canada – including Manitoba – would have little to worry about. The CPP would remain healthy, as it has been since it was reformed in 1997, with the possibility of a minor increase in rates.

Most of the risk would lie with Alberta, especially over the long term. It’s hard to imagine why anyone would want to bear that risk given the marginal and uncertain benefits it would yield.

tom.brodbeck@freepress.mb.ca