The Alberta government’s announcement last week of a possible referendum on an Alberta pension plan has reignited debate around Alberta going its own way with pensions.
A report from consultant LifeWorks says Albertans could save $5 billion in the first year of a province-run pension plan. The Alberta government argues that this would mean lower pension contributions and higher payments for Albertans.
But the report’s rosy findings rely on an assumption the province could claim $262 billion — $362 billion of all the CPP’s assets (up to 53 per cent), critics say — and they question whether those high figures are realistic.
St. Albert's Tracy Neumann, 64, said that as someone who is eligible to begin collecting CPP in December, she worries about her pension all the time.
“They put so many restrictions and controls on it, and I think about how much I’ve paid over the years,” she said. “Am I really going to get that all back? I’m going to have to live a long time. How many people live really long lives?”
She supports an Alberta-run pension plan because she thinks Premier Danielle Smith and the UCP have Albertans’ best interests in mind.
“I feel like we’d be serving Albertans’ needs rather than Canadians’ needs, and we are a unique province,” she said.
Rick Harbarenko, 72, from St. Albert finds the Alberta pension plan a risky proposition.
He’s skeptical of the report’s finding Alberta would be able to draw $334 billion from the CPP.
“If it was accurate, and I could prove it, then I would have to say I still think we’re better off with a large group than a small group on our own, even though we have that younger population,” he said. “That doesn’t last forever.”
He also worries setting up the new system would be costly for the province and the taxpayer pool would be too shallow for a stable pension fund.
“You’ve heard about Quebec,” he said. “We should learn from what our neighbours have already done.”
Quebec’s pension plan is separate from the CPP, and the province’s residents pay more in contributions than the rest of Canada.
Ryan Griffith, 46, from St. Albert, said he’s not ready to make up his mind about the proposal until he has more information.
“It’s pretty ambitious,” he said “Who stands to gain the most? People or government? What’s going on? We don’t have all the details.”
Griffith said he’d feel safe with his money in an Alberta pension plan right now because the province is in a strong economic position, but he questioned whether that security would be long-lasting, especially with looming uncertainty around the future of the province’s oil industry.
“I don’t think there’s a whole lot of understanding of 15-20 years down the road,” he said. “As a young person, I think that’d be very important to understand where that would lead. Short-term successes or maybe long-term failures. We stand to lose a lot, or we stand to gain a lot. Just tell us what the plan is.”
Economist sees immediate benefits, big drawbacks
Trevor Tombe, a professor of economics at the University of Calgary, said in his analysis an Alberta pension plan would come with some immediate benefits but also long-term risks and drawbacks.
Alberta’s younger population relative to other provinces means it can more easily sustain a separate pension plan, and Albertans could expect contribution rates would be lower in the immediate future, he said.
However, the province would need to see steady inward migration for contributions to remain low.
“I estimate that 60 per cent of the benefit in terms of lower contributions evaporates if net migration into Alberta is balanced — when the same number of people are moving in as moving out,” he said.
He said the plan is also subject to greater risks than the CPP when it comes to investments because smaller plans are more sensitive to changes in investment returns.
“I estimate a one-in-three chance that the minimum contribution we need to sustain a separate plan is over 9.5 per cent,” he said. “That’s a one-in-three chance that all of the benefits are actually not there.”
The odds Alberta can pull 53 per cent of all CPP assets are also slim, according to Tombe.
The LifeWork’s model imagines the province never joined the CPP in the 1960s, allowing the province to gain a great deal in compound interest.
Tombe said that LifeWorks’ interpretation isn’t totally unfounded.
“It comes down to the language of the CPP Act being very imprecise,” he said. “The act just says that you should give to a separating province a share of those returns that are derived from contributions. But it doesn’t tell you how to derive them, so you can imagine lots of potential ways of doing that derivation.”
In Tombe’s own models — which rely on similar data but different assumptions about what the province would be owed should it create its own plan — Tombe found the province could expect to get 20 to 25 per cent of CPP assets.
“Mathematically, [the province’s approach] is a transparently unworkable approach to dividing plan assets,” Tombe said. “If you apply that formula to Alberta plus Ontario, just these two provinces, it would provide for more assets to be paid out than actually exist.”
As for whether Tombe is onboard for an Alberta pension plan?
“Taking unnecessary risks is not something, I think, is perhaps prudent, but other people might disagree,” he said.
