Would Alberta be better off leaving the CPP?

Open this photo in gallery:

The same contribution rate and benefit formula apply to all Canadians – outside of Quebec, which has its own Quebec Pension Plan. The actual cost of the benefits being earned, however, differs from province to province since cost is affected by many factors.

One of the cost drivers is age; the younger the population the lower the cost. As the chart shows, Alberta is the second-youngest province, which means that Albertans have been paying more than their fair share into the Canada Pension Plan. This is something Alberta believes it can rectify if it left the CPP.

Age, however, is not the only factor affecting pension costs. Unemployment rates also have a bearing as the higher the unemployment rate the higher the cost of pensions. That is because less money is coming in but the benefits ultimately paid out may not be much less (because of what is known as the dropout provision in the CPP).

While not shown in the chart, Alberta has historically had one of the lowest unemployment rates in the country. Hence, another reason it has been paying more than it feels it should. Other factors also affect costs, such as average earnings, fertility rates and immigration rates.

Alberta may not preserve its cost advantage forever and in fact it is likely that its pension costs in the very long term will not be very different from the cost in other provinces. The current generation of working Albertans, however, could stand to benefit handsomely from leaving the CPP.

It could spell the end of the CPP as we know it as contributions for those remaining in the CPP would rise and other provinces – especially Saskatchewan and Manitoba – might be tempted to join Alberta.

The big question is, will Alberta actually leave? And how much of the existing CPP assets would they be allowed to take with them?

Frederick Vettese is former chief actuary of Morneau Shepell and author of the PERC retirement calculator (perc-pro.ca)