The impact of Alberta withdrawing from the CPP

By Letter to the Editor on February 5, 2020.

Premier Jason Kenney’s Fair Deal Panel will consider whether Alberta should withdraw from the Canada Pension Plan (CPP) and create its own plan.

Albertans need to think hard before abandoning a pension plan that is universal, stable, portable, well managed, and has inflation-protected benefits.

Contributions and pensions are paid at the same rate across the country.

CPP is jointly governed by federal and provincial governments. Over the last 50 years, governments have put the plan on a sound investment and administrative track. CPP’s last actuarial report shows that current contribution rates could be stable for 75 years.

CPP investments are overseen by experts on an independent fiduciary board whose mandate is to invest solely in the interests of plan beneficiaries by obtaining the best possible return and diversifying risk. The CPP investment fund is over $400 billion. Its average rate of return has been over 10% a year.

It is a Canadian success story. Why would Albertans pull out of CPP?

Some claim an Alberta plan could have lower contribution rates. A small reduction might be possible initially, but the long-term stability of CPP’s contribution rates depends on a steadily growing employment earnings base; otherwise, significant rate increases could be required. This is a risk given our heavy dependence on volatile commodity prices. We are better protected as part of a larger, diversified whole.

Some anticipate that an Alberta plan’s assets could be directed towards promoting the Alberta economy. This would be contrary to the fiduciary obligations of the plan’s trustees.

If a separate Alberta fund underperformed because of investment in a suffering Alberta industry, workers would face multiple blows: Fewer jobs, lower wages and higher contribution rates.

Although CPP has more than $400 billion in assets, its liabilities exceed $1 trillion. An Alberta plan could inherit about $180 billion in liabilities. Some have said our share of assets would be $40 billion. Whatever our share, a large unfunded liability and a smaller population base with a volatile economy is a risky proposition.

There are other significant concerns. How a request would be treated by the other governments is unknown. A costly duplicate administration would have to be created, and such large transitions are error-prone.

It would be a monumental change. Albertans could lose a lot. It’s not clear what we would gain.

Virendra Gupta and Ellen Nygaard

Edmonton

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