Alberta Pension plan a horrible idea

Danielle Smith has come out with a glowing report suggesting that Alberta switching to its own pension plan would lead to massive savings and better payouts so a great deal. As often said, if something sounds too good to be true, it probably is. And this report was full of flawed summaries never mind the way government playing this, they are trying to take Alberta out of CPP based on falsehoods. Below I will list why this is a bad idea and needs to be thrown in the trash bin. And if a referendum, Albertans need to vote firmly no. And if Alberta proceeds other provinces and federal government need to consider amending the CPP act to ban withdrawals.

Much of the rational for leaving is Alberta would be entitled to 53% of CPP assets which even with basic math is laughable. Alberta represents 15% of the population in CPP (note Quebec is excluded since has its own plan) while even if you account for higher incomes at best maybe entitled to 20%. Using the same formula to say Alberta entitled to 53% would mean if BC and Ontario also withdrew, those three combined would be entitled to 128% of CPP assets which obviously doesn’t add up. But even if false, my bigger concern is Smith will go into a referendum in 2025 on this lie and some will vote yes on false information. Much like £350 million bus during Brexit was shown to be false and many claim Brexit won on lies; this is an even bigger lie . But leaving aside the falsehoods and even just dealing with truths, some will say Alberta gets a bad deal and since a younger population with higher incomes, they would be better with their own. I believe that is false for a number of reasons.

One of the biggest misunderstandings is how CPP works. Every individual regardless of province they live in pays the same rate of 5.95% up to a maximum of $66,600. Likewise how much you get back when you retire depends both on how much you paid in and what age you choose to collect CPP at (standard is 65, but reduction if under with 60 minimum while bonus if above with maximum being 70) irrespective of which province you live in. As such those claiming Albertans getting a raw deal shows fundamental misunderstanding of how CPP works. CPP does not use pay as you go like most retirement plans where today’s payers find today’s retirees. Instead money you put in now is invested by CPPIB and then when you retire returns from those investments pay for your retirement. So Albertans pay same rates and receive same benefits. If CPP was funded same way social security in US was, may have a point and Social Security like many public pensions in countries with aging population faces risk of going under. But CPP is not so that argument doesn’t apply here.

Instead there are many benefits Alberta gets being part of CPP. Due to larger scale, there are economies of scale so costs are lower as well as larger pool and more diversified so less susceptibility to volatility. CPP has often been held up as a model of one of the best managed pension plans in developed world. Wasn’t always that way, but thanks to reforms in late 90s, it is now sustainable for next 75 years. CPPIB has an independent board and any type of political interference is strictly prohibited. Instead they must invest to achieve best rate of return possible for future retirees. AIMCo who would be likely replacement is far more politicized and may choose to favour certain preferred industries of government of day making it more about funding Smith’s pet projects not providing a secure retirement. CPPIB’s track record beats AIMCo hands down and any savings in lower rates assumes things stay same. Because of a highly mobile population as well as shift towards cleaner energy, there is no guarantee Alberta will have a younger population with higher incomes in future. In fact real possibility opposite can happen so staying in CPP hedges against this risk. When CPP created and Quebec decided to have its own, they had a younger population then and thought was could have lower premiums, but instead now opposite is true.

Other problem is ignores a sizeable chunk of people in Alberta live part of their life there but part in other provinces. In Quebec much less of that due to language barriers. The age benefits many claim people get ignores a high number of people who work in Alberta retire in other provinces and pension plan needs to pay those. Dealing with people moving in and out would require massive bureaucracy further whittling down any potential savings. Also could hurt economic growth as may make it harder for employers to attract talent as many fearful working in Alberta may jeopardize their retirement security may forgo job opportunities there and choose to work elsewhere. Already dealing with people who work part of their lives in more than one jurisdiction is complex, but at least number is small enough it is possible. Number moving in and out of Alberta is such a high percentage that it would create a logistical nightmare. In addition regardless of assets, there are certain fixed costs to running a pension and with smaller population, leads to much higher fixed costs and inability to benefit from economies of scale you get being in a national plan.

Reality is those pushing this are mostly people who resent rest of Canada and doing so as a why to snub the rest of the country. Take Back Alberta and other quasi separatists need to be told most retirees aren’t interested in having their retirement security jeopardized so UCP can pick fight with feds. To make matters worse the survey on government’s webpage is highly slanted and doesn’t even give option of staying in CPP unless one leaves in comments. This is clearly a government determined to leave and will present as many falsehoods to ensure win referendum. As such opposition and others opposed need to present facts to hopefully kill this in referendum. But if it passes, NDP needs to run in 2027 on cancelling plan and if they win, they will have a mandate to stay in CPP.

But because would hurt federal plan meaning others pay higher rates and/or lower benefits or perhaps higher retirement age (this would be my preference if worse comes to worse, actually should do anyways), I believe other provinces have interest in blocking this. CPP act can be amended with 2/3 of provinces representing over half the population. So as long as 6 of the 9 including Ontario agree to it, it can be done. And I believe act should be amended to forbid provinces from leaving. Claims unfair as Quebec has own plan should note Quebec never was part of CPP ever. And interestingly enough many pushing this even admit it is their goal to hurt rest of Canada. So its time rest of Canada, say no you are not going to jeopardize the retirement security of all Canadians outside Quebec over your political ideology and temper tantrums.

While Alberta has some legitimate grievances, I believe way Smith going about it does more to make rest of Canada look poorly on province than be sympathetic to their concerns. When richest province per capita complaining about helping others and how bad country is, many rightly see it as selfish and whiny, which it is. Canada is a great country even if imperfect and Albertans should be proud to be part of Canada and see Canadians in other provinces as their fellow citizens, not some hostile foreigners as the UCP & TBA crowd do. CPP is not a transfer payment to others, it funds one’s individual retirement so it does not involve redistribution like say equalization and transfer payments.

I get Trudeau very unpopular in Alberta, but he will not be PM forever and policies should be made based on what is best long term, not who happens to occupy 24 Sussex on a given day as PMs come and go. Likewise helping those with less is a very Canadian thing and if roles reversed, I believe East would help Alberta. Albertans complaining here look a lot like millionaires complaining about paying higher tax rate than poor and middle class and most don’t look kindly to that. That is not to say there aren’t legitimate grievances. But I believe Alberta needs someone like Lougheed who tries to win over the hearts and minds of Canadians elsewhere, not someone like Smith who just wants to flip the bird to the rest of the country.

In Summary Alberta going to its own pension plan is both bad for Albertans as puts their retirement security in jeopardy whereas right now under CPP they have a good deal with some of the lowest rates in OECD yet a plan that is secure where even those just entering work force can count on it being there when they retire, something most others in OECD don’t have. While it is possible rates would be lower in short term, there is no guarantee it will work out well. But in addition to that it is bad for rest of Canada and we should all be Canadians first, our province second and fact is this will hurt rest of Canada over a group of right wing malcontents wanting to pick a fight with feds. I am fine with Smith speaking out forcefully when federal government does something harmful to Alberta but I believe Alberta going to its own pension plan is bad for both Albertans and bad for rest of Canada outside Quebec.