Trudeau says Alberta’s withdrawal from CPP would weaken pensions for everyone

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Prime Minister Justin Trudeau and Alberta Premier Danielle Smith traded barbed letters on Wednesday as Mr. Trudeau warned the province’s proposal to withdraw from the Canada Pension Plan would harm pensioners, and pledged that his government will “do everything possible” to keep the CPP intact.

Mr. Trudeau said in a letter to Ms. Smith sent on Wednesday that he is “deeply concerned” about the proposed plan, which would see Alberta pull its share of assets from the CPP to set up a separate Alberta Pension Plan. He said it “would weaken the pensions of millions of seniors and hard-working people in Alberta and right across the country. The harm it would cause is undeniable.”

Federal officials and cabinet ministers are under instructions “to take all necessary steps to ensure Albertans – and Canadians – are fully aware of the risks of your plan, and to do everything possible to ensure CPP remains intact,” Mr. Trudeau said.

Andrew Coyne: Alberta’s mad plan to break up the CPP, and why it (deliberately) misses the point

After Mr. Trudeau said Canadians “should not have to worry” about the security of pensions, and that Alberta’s plan would create more “uncertainty and instability,” Ms. Smith scolded Mr. Trudeau in a pointed response published later on Wednesday. Ms. Smith’s own letter told Mr. Trudeau it is “disingenuous and inappropriate for you to stoke fear in the hearts and minds of Canadian retirees on this issue.”

The duelling letters set up a standoff between Ottawa and Alberta over the province’s proposal. Ms. Smith’s government has based its plans on a contentious report that estimated Alberta could be entitled to withdraw as much as $334-billion from the CPP by 2027 – or more than half the plan’s $575-billion in assets – according to calculations that have drawn widespread criticism.

The act that created the CPP gives any province the right to pull out and establish its own plan, which Quebec did in 1965. But the impact of a withdrawal by Alberta, and the fight over the formula used to calculate its share of pension fund assets, could have sweeping implications for pensioners across the country, according to Mr. Trudeau.

Mr. Trudeau’s letter to Ms. Smith describes the CPP as “a stable fixture” of pension income for Canadians, “very much including Albertans.” He said Alberta’s possible withdrawal “would expose millions of Canadians to greater volatility” at a moment when the cost of living has soared because of high inflation and rapid rises in interest rates.

“We will not stand by as anyone seeks to weaken pensions and reduce the retirement income of Canadians,” Mr. Trudeau wrote.

Andrew Willis: Danielle Smith’s plan to withdraw from CPP would leave all Canadians – including Albertans – poorer

Ms. Smith responded that she is “concerned by the tone” of Mr. Trudeau’s letter. In particular, she said Alberta agreed to the provisions for withdrawal from the CPP “in good faith,” and that the province would treat any attempt to stop it from leaving the CPP as an “attack on the constitutional and legal rights of Alberta” that would be “met with serious legal and political consequences.”

At the same time, Ms. Smith said that if Alberta decides to withdraw from CPP there would be “some effect” on the CPP, but told Mr. Trudeau “the effects would not be remotely as severe as you imply.”

Ms. Smith has said her government will not make any decision until it has consulted with Albertans – a public consultation process launched by the government is under way, led by former provincial treasurer Jim Dinning – and has promised it would hold a referendum to decide the issue, if necessary.

Alberta has based its proposal on estimates from a report it commissioned from LifeWorks, a human-resources consultant that has since been acquired by Telus Health. The report estimated that Alberta could reduce its pension-plan contributions by as much as $5-billion annually under a new provincial plan, reducing premiums for individual workers and businesses, and that employee contributions to CPP would increase by no more than $175 per worker each year for the rest of Canada.

Ms. Smith compared that sum to the estimated cost to consumers from the federal carbon tax, raising another political sore spot for Alberta. “I would suggest you focus your government’s efforts to protect Canadians’ pocketbooks by eliminating that inflation inducing elephant in the room, rather than focusing your ire on Alberta exploring potential ways to benefit its seniors and workers.”

Critics of Alberta’s proposal – including academics, pension experts and executives at the Canada Pension Plan Investment Board, which manages the CPP’s assets – have said the province’s projections are too optimistic. Various competing estimates suggest Alberta’s fair share of CPP assets could be anywhere from $100-billion to $150-billion – or roughly a third of what the province claims it would be entitled to.

One day before the Prime Minister wrote to Ms. Smith, CPPIB wrote a separate letter raising concerns about the Alberta government’s early outreach to gauge support for the plan. CPPIB said a survey sent to Albertans and an advertising campaign have been biased and played down the potential risks and costs inherent in creating a separate pension plan.

Alberta Finance Minister and Treasury Board president Nate Horner brushed the CPPIB’s criticism aside, saying the pension fund manager “has a vested interest in maintaining the status quo.”

The escalating political feud between Ottawa and Alberta raises the prospect that if the province chooses to press ahead with its plan, it could spark a legal dispute to be settled at length in courtrooms.

Alberta has premised its plan – and its claim that it is entitled to more than half of CPP’s assets – on the basis that its workers and businesses have contributed a greater share of CPP than they have withdrawn because of demographic advantages that include a younger population with more working-age people and higher wages, on average.

But Ottawa is likely to assert that it has final say about how the formula for withdrawing from the plan is applied, and could win support from other provinces that are wary of the potential impact on their own pensioners if Alberta chooses to leave.