Certain politicians have suggested Alberta withdraw from the Canada Pension Plan and go it alone. Would the province benefit from a solitary system or is the idea short-sighted?
Niels Veldhuis, economist and president of the Fraser Institute
In June, Alberta’s Fair Deal panel recommended the development of a comprehensive plan to withdraw the province from the CPP. While a wide-ranging study on leaving the CPP has never been done, the evidence clearly points to potential tangible benefits for Albertans.
First, it’s important to acknowledge why Alberta is considering a withdrawal. Albertans are frustrated with the way Ottawa and other provincial governments have harmed the province’s main industry and its economy. Yet, Albertans continue to make disproportionate contributions to national programs.
Research published by the Fraser Institute in April 2019 found Alberta workers accounted for 16.5 per cent of total CPP contributions, while the province’s retirees consumed just 10.8 per cent of CPP expenditures. Between 2008 and 2017, Albertans’ net contributions to the CPP were $27.9 billion.
Federalist countries like Canada are about balancing the needs of each constituent province so that, on net, it makes sense to be part of the country; in other words, the benefits of being part of Canada outweigh the costs. One major challenge is the lack of balance for Albertans. Again, despite a devastated economy, the province continues to disproportionately contribute to national programs, but without normal compromises from other provinces and the federal government.
Regarding the CPP, specifically, if Alberta established its own stand-alone plan, assuming it was structured the same way as the CPP, its contribution rate could be as low as 5.85 per cent of pensionable earnings compared to the 9.9 per cent Albertan’s paid in 2018, based on the pre-expanded CPP.
Furthermore, it’s worth noting the CPP isn’t a low-cost pension. In comparing it to seven other large public pensions, Philip Cross, former chief analyst at Statistics Canada, found the CPP had the highest costs among plans examined.
There’s a real possibility an Alberta Pension Plan would have lower costs than the CPP. From reduced CPP taxes to potential lower costs, there’s enough evidence to warrant reconsideration of Alberta’s involvement in the CPP.
Rafat Alam, assistant economics professor at Grant MacEwan University
Albertans have divided opinions about the provincial government’s potential withdrawal from the CPP and the introduction of its own pension plan. Looking at the arguments against a withdrawal, it’s clearly a risky proposition.
First, the CPP is a well-functioning and well-performing system. Even during the last volatile months, the CPP Investment Board made gains compared to the loss incurred by Alberta’s proposed fund manager, the Alberta Investment Management Corp.
Second, the whole point of any pension is to pool contributions from the working age population to fund retirees. If Alberta leaves the CPP, the province loses the larger national base of contributors. Third, the main argument for an APP is that, since Alberta has a younger population, they would contribute less. The other related argument is that, due to the province’s relatively higher average income, contributions would be higher because more people would be contributing at the maximum threshold.
These arguments may be true for the short term, but they’re uncertain in the long term — and for a pension fund, we should always think long term. We can’t be certain of Alberta’s future demographic mix or average income. Our economy still depends on a volatile energy sector. A long-term slowdown in that sector and a failure to diversify the economy may cause out-migration, resulting in a loss of the current younger demographic. It may also reduce the average income of Albertans. With that scenario’s lower contributor base, pension contributions may be required to rise significantly. Moving to an APP may benefit the current generation at the expense of future generations.
Finally, it’s unclear how Alberta’s share of CPP contributions, since the plan’s inception, will be calculated and transferred to an APP. It would be a highly politicized negotiation and we may lose significant funds in that transfer process. We’d also have a higher per capita cost for managing a provincial plan.
Given the above arguments, other than as a tool for federal-provincial political tactics, there’s no sound reason for Alberta to leave the CPP.