Is There a Rational Basis for an Alberta Pension Plan?

Author: Tim Platnich

Originally published on October 7, 2023; revised February 9, 2024.

It is interesting how the same people that exhort us to follow “the experts” without question attack an expert’s report that they don’t like.

The Alberta government commissioned a report from LifeWorks to analyse the costs, benefits and risks of an Alberta Pension Plan. LifeWorks was formerly called ‘Morneau Shepell’. Bill Morneau, of Morneau Shepell, was the finance minister under Prime Minister Justin Trudeau from 2015-2020. Among other matters, Morneau Shepell specializes in actuarial and pension plan administration services across a wide-range of contexts. LifeWorks is owned by Telus Corp.

LifeWorks prepared a Report.

On the question of whether Alberta can withdraw from the CPP, to form its own pension, the Report notes that under the Canada Pension Plan Act (the CPP Act) Alberta can withdraw from the CPP and set up its own pension provided certain conditions are met.

The Report further notes that under the CPP Act, upon withdrawal, the Alberta Plan would be entitled to a share of the CPP assets. The method of calculation of this amount is set out in the CPP Act. Alberta is entitled to the amount “equal to Albertans’ contributions less benefit payments and expenses accumulated with net investment earnings.”

LifeWorks calculates that as of January 1, 2027, Alberta’s share of the CPP assets will be $334 billion representing 53% of the base CPP assets on that date.

Based on this calculation, the Report analyzes what an Alberta Pension would look like from the point of view of contributions and benefits. The Report concludes that, for a number of reasons, an Alberta Pension Plan could deliver the same or better benefits with lower contribution rates. In the first year, contribution savings of $5 billion are estimated translating into savings of $1,425 per employee.

The expert calculation of Alberta’s share of the CPP assets is being ridiculed by the eastern media including the Globe and Mail and the Toronto Star. Indeed, the whole idea of Alberta leaving the CPP and having its own pension plan is being ridiculed. For example, here is a recent headline from the Globe and Mail: “Alberta’s mad plan to break up CPP, and why it (deliberately) misses the point”.

At this point in time, the Alberta government does not have a plan to leave the CPP. It is considering whether or not to do so. It has committed to a referendum seeking approval before instituting any ‘mad’ plans.

Based on the Report, there is a rational basis for Alberta withdrawing from the CPP and establishing an Alberta pension.

Of course, there are other considerations, some valid and some not. The notion that the Alberta government would ‘steal’ pension benefits from its citizens is not grounded on any evidence. Similarly, the concern that Alberta would mismanage its own pension has no basis in fact. Why would the federal government be any more trustworthy or competent than the Alberta government?

Some legitimate concerns are as follows. To the extent a pension plan is like insurance, it is argued the larger the pool of participants, the better. In the context of insurance, a large pool spreads out the risk of insured events so that an event, like a house fire, is spread out over everyone with fire insurance. The insurance payout for a house destroyed by fire may only cost pennies when spread out over millions of collected premium dollars.

What is the risk of an Alberta pension plan? The risk is that over time, there will be more benefit claimants than there are contributors. This is a manageable risk. Is this not the same risk faced by the CPP just on a larger scale?

Risk management is a competence issue. There is no evidence that this risk would be better under federal control versus provincial control.

Another consideration is based on sentimentality. Does Alberta want to become estranged from the rest of Canada by withdrawing from the CPP? This is a legitimate, political consideration. This is why a referendum makes sense. This consideration is not technical and is not properly the subject matter of expertise or expert evidence. Only citizens of Alberta can make this call.

Naturally the beneficiaries of Alberta’s overcontribution to the CPP want to maintain the status quo. They want to frame Alberta’s consideration of an Alberta pension plan as a form of whining. When you take money from someone and they object, by their argument, the victim is a whiner. This is unfortunate rhetoric. Alberta has two options: stay withing the existing CPP arrangement or leave the CPP and establish its own pension plan. Alberta rightly is considering both options and has sought expert analysis on the issue. Ultimately, the citizens of Alberta will decide. I do not see anything irrational about Alberta’s approach. Do you?