As Alberta eyes more than half of CPP assets, what could a split look like? | Globalnews.ca
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Alberta Premier Danielle Smith‘s push for her province to establish its own pension plan and break away from the Canada Pension Plan (CPP) leaves many questions swirling for Canadians across the country.
Prime Minister Justin Trudeau said earlier this week he is “deeply concerned” over the proposed plans, and that he has instructed his cabinet and officials to do “everything possible” to ensure the CPP remains intact, warning that an Alberta exit would cause “undeniable” harm.
“Alberta’s withdrawal would weaken the pensions of millions of seniors and hardworking people in Alberta and right across the country,” Trudeau said in an open letter.
“Withdrawing Albertans from the Canada Pension Plan would expose millions of Canadians to greater volatility and would deny them the certainty and stability that has benefitted generations.”
Smith quickly pushed back, saying that “Alberta agreed to those provisions in good faith when the legislation was enacted, and in the event that Albertans decide to withdraw from the CPP, they expect the CPP Act and its withdrawal formula to be followed.”
“Any attempt to do so will be seen as (an) attack on the constitutional and legal rights of Alberta, and met with serious legal and political consequences,” she wrote in a letter to Trudeau shared online.
But what is going on, and is an Alberta withdrawal actually possible?
There is an exit clause in the Canada Pension Plan’s legislation, which allows provinces to pull out of the national program if they have their own old age security program.
Currently, Quebec is the only province not part of the CPP, but unlike what Alberta is proposing, Quebec never took part in the CPP, which was created in 1966.
Political ccientist Duane Bratt compares the proposal for a potential withdrawal as being like a divorce given Alberta has been taking part in the CPP for nearly 60 years.
“If you’ve been married for 20 or 30 years, there’s going to be a division of assets and there’s going to be a dispute over those divisions of asset, and it could be in the tens, hundreds of thousands of dollars” Bratt said.
“But now you’re talking about a division of assets involving $100- to $200-billion. Like it’s really, really complicated. And that’s not the impression that the Alberta government is portraying to its citizens.”
The Alberta government hired the firm LifeWorks to run a cost-benefit analysis of an Alberta Pension Plan, which it released in August.
If the province made its own plan, it would be entitled to a portion of the current CPP assets under existing legislation. The firm says Alberta would be entitled to $334 billion, about 53 per cent of CPP assets, based on “a reasonable interpretation of the CPP Act.”
But that estimate has faced questions.
Calgary-based economist Trevor Tombe doubts this outcome, saying there’s no obvious way to determine a hypothetical Alberta Pension Plan (APP) endowment from CPP because the language on how this would work in imprecise in the CPP legislation.
In a paper analyzing the report, as well as public comments on social media and editorials, he wrote that the calculations are “highly problematic” though noted a separate Alberta plan could be “financially viable.”
Bratt pointed to this analysis when he said there are multiple ways to determine how much money Alberta would be entitled to from the CPP if it pulled out.
“You could make a case for roughly anywhere between 20 and 25 per cent [endowment]. Well, that’s a big difference. I mean, we’re talking the difference between $80 billion and $334 billion that would have to be negotiated,” Bratt said.
Currently, the Alberta government has launched a $7-million advertising campaign on the topic and are holding phone consultation sessions ahead of a potential referendum on the CPP.
If Alberta opted to create its own pension, they would first have to give Ottawa written notice, which begins a three-year period to work toward implementing an Alberta Pension Plan.
For example, if Alberta gave notice it was leaving the CPP on Jan. 1, 2024, then the earliest an APP could be operational would be Jan. 1, 2027.
The debate around an APP was thrust to the national stage this week in the exchanges between Trudeau and Smith on Wednesday, and federal Conservative Leader Pierre Poilievre issuing a statement on Friday saying he encourages Albertans to stay in the CPP.
He called Trudeau’s policies the reason this debate is happening in the first place.
“His unconstitutional anti-development laws and painful carbon taxes have forced Albertans to look for ways to get some of their money back. We would not be having this CPP debate if I were today Prime Minister,” Poilievre’s statement said.
“I encourage Albertans to stay in the CPP. As Prime Minister, I will protect and secure the CPP for Albertans and all Canadians, by treating every province fairly and freeing Alberta to develop its resources to secure our future.”
In a response statement, Smith said she appreciates the tone and sentiment expressed by Poilievre, but emphasized she sees this as an opportunity for Albertans to have a discussion on an issue that may “improve the lives of our seniors and workers without risk to the pensions of fellow Canadians.”
“After this broad consultation and discussion are complete, Albertans will ultimately decide whether or not to pursue this opportunity further,” the statement continued.
Mount Royal University political scientist Lori Williams says Poilievre’s stance is not a surprise, as any federal leader would want to keep the CPP intact, but it creates potential problems for Smith.
“That’s probably bad news for Danielle Smith because we now have a Conservative federal leader saying to the people of Alberta, you would be better off staying in the Canada Pension Plan. And that puts a bit of distance between Danielle Smith and Pierre Poilievre,” Williams said.
The idea of an APP is not new and has been floating around Alberta politics in various forms since the 1980s, but both Williams and Bratt say it has never been overly popular.
An April Leger poll found only 21 per cent of Albertans were in favour of creating an alternative to the CPP, with 54 per cent opposed to the idea.
Williams says it’s important to remember that this was not a promise put forward by the governing United Conservative Party in their election earlier this year.
“The UCP knew that they probably couldn’t win if they if they talked about this in the election campaign. And Daniel Smith explicitly said that nobody was touching Albertans pensions,” she said.
“So that makes things pretty tough for her in the eyes of those Albertans that are a little risk-averse and a little worried about this. They’re getting a lot of questions and not a lot of clear or certain answers.”
Williams says that Alberta has been historically been disadvantaged by several policies and dynamics coming from Ottawa, and ideas like creating a separate pension plan have roots in that disenfranchisement.
However, she doesn’t see this as the best way forward with part of the government’s case against the CPP is an argument that Alberta puts forward a disproportionate contribution.
“Albertans aren’t paying any more in the way of premiums than any other Canadian, and they aren’t getting any less than any other Canadian when they retire. That’s all absolutely equal,” Williams said.
“The reason that there’s more money coming from Alberta proportionately into the fund is that Albertans have higher incomes.”
The Smith government says that if Alberta had its own pension, people would have to make smaller contributions due to also having a younger-than-average population. However, Williams cautions that Quebec made a similar argument when it opted not to join the CPP in 1965.
“They now pay higher premiums because their population is no longer as young as it was when the pension plan was created,” Williams said.
“Most people can do basic arithmetic and they understand that the numbers being claimed at the outset composing over half of the existing fund and the claimed benefits just don’t add up.”
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