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Busy pedestrian traffic mid-week in Banff, Alta., on July 10, 2019. Alberta Premier Jason Kenney has said Alberta could save money with its own pension plan.

TODD KOROL/The Globe and Mail

One of Canada’s leading pension experts says Alberta’s suggestion to pull out of the Canada Pension Plan and operate its own retirement system is fraught with financial, demographic and political risks.

Keith Ambachtsheer was central to the debate in the 1990s over reforming the national pension and was a strong advocate for forming an independent investment manager – the Canada Pension Plan Investment Board, which today manages $400-billion of the plan’s assets. Now, he’s stepping into the continuing dialogue about whether Alberta would be better off going it alone.

His views are contained in a policy paper he said he did “at the request and encouragement of prominent Canadians from coast to coast.” Mr. Ambachtsheer, who writes a subscription advisory letter for the pension industry, said he was not compensated for the report.

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Alberta Premier Jason Kenney, building off the arguments contained in a 2018 report from the Fraser Institute, has said Alberta could save money with its own pension plan. Alberta’s work force is younger and better paid than Canada’s as a whole, so it’s sending nearly $3-billion more into the plan a year than its retirees are receiving.

“Because we are by far the youngest population in the country ... we are paying higher premiums than we otherwise would,” he said last year.

Mr. Ambachtsheer, however, is concerned Alberta’s demography will reverse, undoing the province’s argument. Current estimates suggest that if Canada’s net migration were to drop to zero, the base cost of the plan would increase by 1 per cent, because there would be fewer active workers contributing to the plan.

That trade-off between new workers and higher costs would apply to a provincial plan, as well, and has been seen in Quebec, which once had a young work force, but now charges higher premiums for the Quebec Pension Plan. With the energy patch’s current troubles causing a worker outflow, higher unemployment and falling wages, Mr. Ambachtsheer asks, “What if these recent reversals became a multidecade trend? What implications would that have for the sustainability of an Alberta Pension Plan?”

Mr. Ambachtsheer also said that while the existing Alberta Investment Management Co. would likely invest the money, the plan would still have new administrative expenses to maintain member records and make payments. Alberta Pension Services Corp., serving about 375,000 public-sector employees, has an annual cost per plan member of $175. Even at half that cost, an Alberta Pension Plan would cost Albertans more than $260-million a year to administer, he said.

Mr. Kenney has said AIMCO will manage plan assets “at arm’s length,” as its legislation requires, but Mr. Ambachtsheer says a new Alberta Pension Plan “will require political decisions to be made regarding its investment policy." He noted there have been comments by Alberta politicians who argue the province’s pension plan should help support the oil and gas industry.

Jerrica Goodwin, spokesperson for Alberta’s Minister of Finance, says the province’s Fair Deal Panel, which is broadly considering Alberta’s relations with the federal government, is working to complete its recommendations by March 31.

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“We welcome all submissions to the Fair Deal Panel concerning the possible creation of an Alberta Pension Plan including Mr. Ambachtsheer’s. It is worth noting that there have been a variety of views expressed by experts on this topic, including those from the Fraser Institute, the C.D. Howe Institute and the Alberta Investment Management Corp., all of which highlighted potential benefits of an Alberta Pension Plan.”

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