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Alberta Pension Plan Put on Pause

The government of Alberta has paused public consultations regarding whether they will step away from the Canadian Pension Plan in place of a provincial pension fund. The pause was announced last Friday at a press conference held by Alberta Finance Minister Nate Horner and chair of Alberta’s consultation panel, Jim Dinning.  

The province has been hosting phone-in town halls where Albertans call to share their thoughts on the situation. In their push to detach from the federal pension system, the Alberta government has spent $9 million on advertising. Most Albertans are skeptical of the funds their government would be entitled to take from the CPP upon departure.  

Under the federal act that created the CPP, provinces are allowed to leave and create their own pension plan, similar to what exists in Quebec. The only stipulation is that provinces leaving the federal program must give three years’ notice and offer a similar pension plan provincially. 

With the new idea for Alberta to leave the CPP, many are left asking what the consequences would be for the rest of the country.  

According to the government of Alberta, referring to a report commissioned by Lifeworks, they claim they are entitled to more than half of the assets in the CPP, amounting to approximately $334 billion, due by January 2027. The total dollar value of the Canadian Pension Plan is $575 billion. 

Premier Danielle Smith’s report, released in September, has been met with skepticism. Smith requested an assessment from the federal government as to the precise figure of what Alberta is entitled to, which Deputy Prime Minister Chrystia Freeland agreed to provide. 

Dinning says he hopes these figures will be available by February. 

Trevor Tombe, an economist from the University of Calgary, said the amount Alberta is asking for is impossible. If Ontario and Alberta withdrew from CPP under the calculations provided by Lifeworks, they would be owed a combined sum greater than what is presently in the CPP. 

If Alberta took over 50 percent of the Plan, which they have suggested they deserve, it would destabilize the entire system, creating a massive incentive for other high-population provinces like Ontario or British Columbia to withdraw. 

Some estimates indicate Alberta leaving the CPP will force the rest of Canadians to increase the amount contributed from their paycheques. This increase will be greater depending on how much Alberta takes upon withdrawal. 

Nationally, it is recognized that a federal pension alone cannot support a retired individual. Instead, a combination of RRSP, TFSA and employer pensions are typically required for a person to have a stable retirement. 

An Angus Reid poll released Monday indicated approximately 48 per cent of Albertans are opposed to the province withdrawing from the Canadian Pension Plan. Many who were polled mentioned fears of increased costs and an uncertain retirement with fewer benefits than they would otherwise have. The survey found that 36 percent of Albertans polled said they were in favour of an Alberta-only pension plan, while 17 percent reported they were undecided. Fifty-one per cent of those polled said they expected retirement to be worse or much worse under an Alberta pension plan, while 31 per cent expect leaving the federal Pension Plan would improve their retirement. 

According to Jim Dinning, the phone-in town hall meetings show that 50 percent of respondents opposed Alberta taking on their own pension plan. 

A major factor is the skepticism among voters that the province will be able to attain the $334 billion they have claimed they deserve. Until these figures are clarified, the public consultations will remain paused. 

An Angus Reid poll of Canadians outside Alberta showed 47 per cent of respondents were opposed to Alberta leaving the Canadian Pension Plan, 28 per cent were unsure, and 25 per cent were in favour of Alberta leaving the Pension Plan. The highest record of support for Alberta’s departure from the Pension Plan came from Quebec, where 32 per cent of respondents were in Alberta’s favour. 

Saskatchewan respondents were a close second, with 31 per cent supporting the Alberta Pension Plan (APP). Worth noting is that Saskatchewan has a voluntary pension plan available, which workers can contribute to in addition to the CPP. Saskatchewan registered the highest rate of citizens who would approve of their own province leaving the CPP, with 37 per cent of respondents saying they would support their government leaving the Canadian Pension system. 

Premiers across Canada hope Danielle Smith and the Alberta Government reconsider their withdrawal from the Pension Plan. Alberta creating its own pension plan would be of great benefit to Albertans but would cost all other Canadians. 

How does the CPP Operate? 

The CPP was created in the 1960s as a national initiative to take money off the paycheques of working Canadians to contribute to a collective fund for pensions upon retirement. 

Employees and employers have each contributed to the CPP since its formation. The exception has been Quebec, which created its own pension plan, the Quebec Pension Plan, at the same time the CPP was created. 

Employers and employees across Canada contributed a combined 11.4 per cent of employee wages into the CPP in 2022 at a peak earning of $64,900.  

The objective is that Canadians will contribute to the CPP throughout their working life with the expectation they will receive their federal pension upon retirement. The expectation is that the money will be consistent and reliable upon retirement. 

The Canadian Pension Plan Investment Board (CPPIB) was created in 1997 as an independent funding management board. The CPPIB manages $575 billion, which, according to the most recent report, had an average annual return of 10 percent over the last decade. This is among the highest return rates on a pension plan in the world. 

An assessment by the Fraser Institute determined the rate of an Albertan’s paycheque taken for pension would decrease to a rate of approximately 6 per cent if Alberta created its own pension plan. This would cause the rest of Canada to increase their CPP contributions. This is based on the presumed withdrawal by Alberta from the Canadian Pension Plan, which is currently asking for $334 billion, 53 per cent of the total funds in the Canadian Pension Plan. 

It is possible the province can begin the process of withdrawal as early as 2025. However, Premier Danielle Smith has said she cannot make a decision until it is clear how much Alberta will be able to take away from the Canadian Pension Plan. 

What makes Alberta such a substantial player in the Pension Plan is a comparatively higher rate of employment among a younger population, resulting in more workers paying in with fewer people drawing from the Pension Plan. Albertans also have a higher average rate of income compared to the rest of the country, which leads to greater overall contributions to the Pension Plan per person. 

Once the federal government responds with their assessment of what Alberta is entitled to, the Alberta government will decide whether there will be a provincial election to decide if the province moves forward in establishing a provincial pension plan. 

– Matthew Harrison, U Multicultural

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