Alberta Premier Danielle Smith’s plan to leave the Canada Pension Plan and start her own is flawed on many levels.
Alberta Premier Danielle Smith, who made a point of not campaigning on taking her province out of the Canada Pension Plan (CPP) and yet is now moving ahead with this, figures the province is entitled to 53 per cent of the CPP’s assets, or $334 billion. And the Alberta Treasury Board and Finance department commissioned a report by LifeWorks saying as much. Now the premier is telling Albertans that transferring the CPP assets to their province would translate into larger paycheques and more comfortable retirements for them.
There is a lot to quibble about over the assertion that Alberta should get $334 billion in assets from the current CPP Investment Board (CPPIB) when Alberta is only responsible for 16 per cent of all contributions to the CPP. Findings in the LifeWorks report on the potential Alberta Pension Plan (APP) are based on what it calls an “alternative interpretation” of the asset transfer provisions in the CPP Act. If the formula were applied to other provinces, such as say Ontario, and it decided to leave the national plan first, its portion and Alberta’s would be more than the entire CPPIB fund. The flawed formula, therefore, invalidates most of the report’s findings.
The “alternative interpretation” is based on assumptions that have no basis in legislation, nor in the context of the modern-day CPP. That said, the root cause of coming up with any formula lies with several problems with the legislation. First, the withdrawal language was created when the plan had minimal assets, and it is therefore not suited to the substantial CPP fund of today. Second, the legislation is vague, and there is no legally clear interpretation that leads to a suitable allocation of the assets in practical terms.
Ultimately, the legislation says the federal finance minister will decide. And if Alberta leaves the CPP, the federal government would pay an amount calculated based on how it interprets the legislation. One can imagine the protracted arguments, lawsuits and serious objections by other provinces, with Canadian unity as one of many casualties.
At the National Association of Federal Retirees, we advocate for all of our members’ pensions and for secure pensions for all Canadians, including the CPP. Losing their CPP after contributing to it for their entire careers could be disastrous for our members and Canadians, many of whom depend on it. A quick email poll conducted Thursday by the Association received 8,100 responses from among our 170,000 members in the first few hours, with 95 per cent saying they opposed Alberta’s plan to exit the CPP. Many commented that the CPP is a vital part of their retirement income and that losing any of it will change their ability to pay their bills. All Canadians deserve retirement income security, and weakening the CPP for all Canadians is unacceptable.
Fortunately, Ms. Smith said the province would hold a referendum before it applies to withdraw from the CPP. A Leger poll conducted prior to the May election found that only 21 per cent of Albertans support this switch, and even among Smith’s UCP party, just 33 per cent gave it a nod.
While Ms. Smith, bolstered by the report’s findings, argues the Alberta Pension Plan (APP) will be more robust than the CPP and might even result in “bonus payments” of between $5,000 and $10,000 for Albertans upon retirement, the truth is it could make their pensions less sustainable and more costly in the long run. The case of Quebec is a cautionary tale. It chose to go it alone, thinking its population would remain young, but it didn’t and now Quebeckers pay the highest contribution rates in Canada. Alberta demographic projections suggest the same thing could happen to contribution rates for a new APP.
It’s surprising that Smith, a supposed lover of small government, would find creating a new plan attractive as LifeWorks’s own estimate for setting up a new plan for Alberta alone puts the administrative costs at $2 billion and even more to maintain.
Finally, Alberta leaving would have a negative effect on the CPP and financial impacts on workers and retirees outside of Alberta. Destabilizing and weakening a solid retirement vehicle like the CPP is not what retired Canadians or those working towards retirement bargained for nor deserve.
Anthony Pizzino is the CEO of the National Association of Federal Retirees.
This article was originally published by the Globe and Mail on Sept. 26.