A recent report highlighting that Albertans are currently paying more into the Canada Pension Plan than the province’s retirees are taking out demonstrated an example of a fundamental reality of defined benefit pension plans: not everyone gets the same thing.

Within DB plans, if you subdivide cohorts of a member population, you will often find some groups subsidizing others, says Malcolm Hamilton, a research fellow at the C.D. Howe Institute. “For instance, if you look at mortality, it’s well-known that women live longer than men. So in this sense, in this pension plan and every other defined benefit pension plan, there is a subsidizing of women by men. No one writes about it, but it’s sort of obvious if you think about it.”

Read: Bridging the pension gender gap

However, this phenomenon only exists on a collective level. No individual person gets any more benefits from CPP based on the province they live in. “The monies collected in contributions by the CPP are not allocated to individual provinces, as the CPP is a national and portable pension plan (integrated with the QPP, which operates in the province of Quebec),” noted a spokesperson for Employment and Social Development Canada, in an email to Benefits Canada. “The amount of contributions in one province or another are based on the number of workers and the level of wages in that province, and are not in any way related to the amount of benefits currently being paid in that province.” 

Alberta’s disproportionate payment then, is a result of several factors. The report, by the Fraser Institute, noted the number of working age people in Alberta is on the rise, meaning more people are paying into CPP than ever before. This is partially due to the influx of workers from other provinces in the last few decades. As well, more working-age Albertans are actively employed in the province than in others.

Wage growth has also accelerated faster in Alberta than the rest of the country (minus Quebec) on average.  “If you look at Quebec, they started with the same benefit and the same contributions [as CPP] but they haven’t been able to stay there,” says Hamilton. “I think they’re at least one per cent, if not more, higher than the rest of the country, because Quebec had a low fertility rate . . . fewer net immigrants. And as a consequence their workforce grew less quickly than the rest of the country.”

Read: Physical workers face retirement challenges as longevity rises: survey

Hamilton says the authors of the report are likely making the case that, since Quebec has demonstrated essentially the opposite of Alberta’s situation, Alberta could afford to be paying less than it currently is into a government pension plan, if it had it’s own provincial plan.

While there may be historical precedent to argue that Alberta has been overpaying over a certain period, the variables could change, he says. “Just because something went a particular way in the past, doesn’t mean it will keep going that way in the future,” says Hamilton.

Oil and other natural resources have been booming businesses for decades, serving as the backbone of Alberta’s economy. “If the party comes to an end, Alberta grows less quickly. And if that happens, whatever argument is being made now for Alberta subsidizing the non-Alberta participants would then work in reverse.”

Given the complexity of the argument, it’s clear the average CPP participant doesn’t have a strong base of knowledge to be able to decide how they feel about the situation, says Ross Undershute, president and chief executive officer at Alberta-based FAS Health and Pension Benefit Administrators.

“If you have a lot of people with high-paying jobs, logically they’re going to be paying the maximum amount [into CPP]. I’m not sure that trend will continue, depending on how the resource economy rebounds. I’m not sure we can continue to see that trend indefinitely.”

However, the CPP’s design allows working individuals with either or both higher salaries and amount of work done, to pay into a plan on a proportionate level to areas where those levels aren’t as high.

Read: ‘Exciting time for retirement’ as CPP deal signals premium boost to 5.95%

From a political standpoint, Alberta is already chaffing over arguments on transfer payments and employment within the resource economy, says Undershute. “In that environment, a situation where Alberta appears to be paying more than it’s fair share in a national system is irritating, but facts are facts.

“It’s just another exacerbating, inflammatory area where Albertans are once again thinking, ‘Wow, we’re getting kicked in the teeth.'”

Copyright © 2019 Transcontinental Media G.P. Originally published on benefitscanada.com

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jan hoselton:

CPP, in my opinion, does not have a provincial bias. The collective “pot” is for Canadians, including expats that receive the CPP while living abroad. There is more of a mass of population in Ontario, so it would seem that Ontario would have more CPP being paid out in that province; but…each Canadian has paid in their fair share. There is a possibility for argument on a gender bias (women over men) if the average life span is longer…similar to insurance rates on males over females and average car incidents.

Wednesday, April 17 at 11:12 am | Reply

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