Alberta exit from the Canada Pension Plan could cost more than Kenney says, experts warn

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Alberta Premier Jason Kenney contends that withdrawing from the Canada Pension Plan would return billions of dollars a year to the province, but experts question how large the savings would be from going it alone.

They warn that exiting the national plan could be complicated and costly, and that having a separate provincial plan could discourage workers in other parts of Canada from coming to Alberta, threatening the labour mobility that has helped fuel the energy sector’s growth.

Mr. Kenney is pushing the idea of an Alberta pension plan as part of his United Conservative Party government’s strategy of seeking more autonomy in light of what it views as hostility from Ottawa and the rest of the country toward the energy industry. The Premier says that with its own pension plan, Alberta could dramatically slash premiums, returning billions to the province’s workers and businesses while maintaining national-level benefits.

The core of what Mr. Kenney calls a “compelling case” for an independent Alberta pension plan is the fact that the province’s work force is younger than those of other provinces, which means Albertans currently pay more into the CPP and draw fewer benefits compared with the national average. According to Statistics Canada, the median age of Alberta’s population is 37.1 years, nearly four years below the national median. Its population aged 65 and older represents 13 per cent of the total population, compared with 18 per cent for the rest of the country.

"Because we are by far the youngest population in the country, we make a net contribution of approximately $3-billion [annually] to the CPP, meaning we are paying higher premiums than we otherwise would,” Mr. Kenney said in a speech on Saturday.

Alberta’s younger population means a provincial plan would require lower contributions from workers and employers, said Fred Vettese, former chief actuary for pensions company Morneau Shepell.

“They do benefit from exiting the [Canada Pension] Plan,” he said. “It actually makes some sense.”

Fraser Institute economist Jason Clemens – co-author of a study earlier this year laying out the case for an Alberta pension plan – said in an interview that a worker and their employer could see their combined annual contributions fall by as much as $2,183. But in the rest of Canada (excluding Quebec, which has had its own pension plan for more than five decades), combined contributions could rise by as much $367 a year to make up for the loss of Alberta’s relatively young contributor base. The Fraser Institute’s calculations assume that obligations to pay existing pensions would offset any CPP assets Alberta would take when it departed.

Mr. Kenney has asserted that Alberta would exit the CPP with $40-billion. That represents the value of Albertans’ share of assets inside the CPP as of a 2015 actuarial valuation, according to Harrison Fleming, Mr. Kenney’s deputy press secretary. That leaves open the question of whether Alberta and Ottawa would split the financial obligation to pay the existing pensions and what share each would have. Mr. Fleming said that would be determined through negotiations.

The path to an Alberta pension plan may not be easy.

Experts say Alberta’s share of the existing CPP could be calculated any number of ways, and would be subject to negotiations with Ottawa and the other provinces.

“All of that’s left to be determined,” said Wilfrid Laurier University professor Tammy Schirle, who says Alberta may be overestimating the benefits of setting up its own plan.

She said individuals’ contributions are aligned with the payments they will receive. So, equating what retirees receive today with contributions from those currently in the work force is an apples-to-oranges comparison.

She added that the volatility of the energy sector would tend to reduce any projected savings in contributions.

Alex Laurin, director of research at the C.D. Howe Institute in Toronto, agreed that contribution rates could be lower under an Alberta pension plan, but the rest of Canada would not likely face significant increases in CPP contributions.

Under the Canada Pension Plan Act, any province needs to give three years’ notice before leaving, and prove that its pension plan would provide comparable benefits. The process has never been tested; Quebec is the only province outside the CPP, but it opted out at the plan’s inception in 1965. Alberta would need to negotiate the terms of the exit, a process that would be fraught with uncertainties.

“There would be a number of details that would need to be sorted through, including the calculation and transfer of existing pension liabilities and the calculation and transfer of any pension assets relating to those liabilities,” the federal Department of Finance said in a statement to The Globe and Mail. The department said any agreement would also need to ensure the portability of benefits to and from other parts of the country, to encourage labour mobility.

Experts expressed concern that a separate Alberta pension may complicate and potentially discourage the movement of workers – a key element of the province’s boom years. Alberta would need to negotiate with Ottawa and with Quebec to ensure that an Alberta pension could move with a worker to other parts of the country, and vice versa.

Mr. Kenney said the Alberta Investment Management Corp., which manages $110-billion in public sector pension funds, would be in charge of an Alberta pension plan’s portfolio. But the province would still need to set up infrastructure to administer it.

When Ontario proposed launching its own plan in 2014, the province spent about $70-million just to develop it and set up an administrative structure. It abandoned the plan in 2016, after the federal government announced an expansion of the CPP.

Alex Mazer of retirement plan provider Common Wealth, who advised the Ontario government on its plan, said the cost would have been much higher had the government proceeded. He noted that Ontario set aside $400-million in credit for the project. He said Alberta would face “hundreds of millions of dollars” in additional costs to set up a plan.

Fifteen years ago, Alberta rejected a proposal to have its own pension plan. But the political climate has shifted to the province’s disadvantage, according to the Premier’s Office, making it necessary for the government to appoint a panel to conduct a new examination. Mr. Kenney has promised that any move to leave the CPP would have to be approved in a referendum.

On Tuesday, the Premier noted that a provincial pension plan and other proposals the panel will examine are powers that Quebec has “enjoyed for decades.”

“I think Albertans deserve at least a good a deal as Quebec has,” Mr. Kenney said. “We’ll see what Albertans think about that.”