Home Month and Year December 2023 The other considerations of an Alberta pension plan

The other considerations of an Alberta pension plan

Experts say much to consider should province withdrawal from CPP


Earlier this fall, the Alberta government released a report that examined the possibility of creating a provincial pension plan and leaving the Canada Pension Plan (CPP).

Prepared by the firm LifeWorks, the 95-page analysis provided a cost-benefit analysis of an Alberta Pension Plan (APP) that determined Alberta – home to roughly 12 per cent of Canada’s population – would be entitled to $334 billion, about 53 per cent of CPP assets.

While national debate has since raged on the exact number Alberta would be entitled to should it leave the CPP – some economists estimate it closer to 20 or 25 per cent – many experts say there is much else to consider.

Jack Mintz, President’s Fellow of the School of Public Policy at the University of Calgary, notes one of the many policies Alberta would need to determine is the plan’s investment model. He points to Quebec as an example, which mandates its plan optimizing returns while also investing in the province.

On the flip side, Mintz points to Norway’s trillion-dollar sovereign wealth fund, which is strictly invested in international financial markets so that the risk is independent from the Norwegian economy.

“They’re doing this for macroeconomic stabilization,” says Mintz, noting the fund, one of the largest in the world, also does not invest in certain private equities or companies with more than five per cent of their revenue derived from the oilsands or coal sectors.

By comparison, more than half of the CPP’s assets are in public and private equity funds – the rest a mix of credit, fixed income, real estate and infrastructure. Most come from the U.S. and Asia Pacific, with just 14 per cent coming from within Canada.

Alberta Finance Minister Nate Horner initially told media in mid-October that Quebec’s model would not be on the table and, rather, the goal of an APP would be to go big and go broad in order to mitigate risk pension plan holders.

Horner’s office later changed its stance, noting, “Albertans have the final say on the mandate of the investment manager. The engagement panel (currently gathering public feedback on the pension proposal) will hear whether Albertans want that mandate to be solely focused on maximizing returns or whether it should have a dual mandate that also focuses on economic development in Alberta, similar to Quebec’s pension manager.”

Meanwhile, Deborah Yedlin, president and CEO of the Calgary Chamber of Commerce, points to how an APP could impact labour mobility within Canada. For example, she brings up unanswered questions about the portability of CPP contributions to an APP, and how it could compromise the province’s ability to attract talent to Alberta.

“One of the biggest challenges we have in this country is labour mobility. The last thing we need to do is compromise it in any way,” says Yedlin.

She singles out the sheer number of out-of-province workers employed within Alberta’s energy sector as an example. The Canadian Energy Centre estimates there are more than 12,000 interprovincial employees working in the oil and gas extraction and support activities in Alberta annually – up more than 155 per cent over the last few decades.

“They’ve been a very important part of the oilsands workforce,” she says.

Yedlin also questions the sustainability of lower premiums in an APP over the long term given the potentially greater influence of fluctuations on a smaller overall portfolio.

“We had 184,000 people come to Alberta in the last 12 months,” she says. “If you have your own pension fund, you now have 184,000 new people who represent liabilities, but your assets have gone up. How do the premiums have to be adjusted to make sure that everyone is getting the pension they need?”

“Businesses need certainty in terms of fixed costs. Their premiums cannot be variable. Businesses don’t need uncertainty in terms of what that contribution would look like. There are so many other things they have to worry about. It’s affordability. It’s the inflationary environment. It’s how to grow.”

The Lifeworks report estimates that APP contribution rates for basic CPP benefits would fall from 9.9 to 5.91 per cent, split between employers and employees. That amounts to annual savings of $1,425 for each Alberta employer and employee, and $2,850 for the self-employed.

Then there’s the issue of governance. Both Yedlin and Mintz note the importance of having the APP managed at arm’s length from the provincial government to avoid any undue influence.

“The funds need to be segregated from government revenues, and there is absolutely no way governments can get their hands on it,” says Yedlin, who points to the CPP governance structure as the “gold standard.”

CPP Investments is the Canadian Crown corporation established to oversee and invest the funds contributed to and held by the CPP. When contacted by Business in Calgary, a company spokesman noted all fund assets are owned by CPP Investments and are separate from the assets of any government.

He noted that while the federal and participating provincial governments have oversight of CPP Investments, the organization is governed by an independent board, and that its independence from government is enshrined in “carefully written legislation, ensuring that we can, and do, operate at arm’s length, free from political interference.”

Should Alberta decide to leave the CPP, Mintz notes the process won’t happen overnight. The province would first need to provide three years’ notice, as well as to assume all accrued obligations and liabilities. It would then need to enact legislation that takes effect within one year after the above notice is given.

Lastly, a federal regulation would have to recognize the provincial pension plan as being comparable to the CPP.

Mintz believes the issue going forward will not be in the complexity of creating an APP. In fact, he says that process could be straightforward if Alberta follows Quebec’s model given the mechanisms will already be in place.

“I don’t think it’s as difficult in that sense,” he says. “That said, the more that you make your own system, the more complex it becomes and the longer it would take to sort out some of these things out.

“For example, if Alberta went down the road of having higher benefit payments, then that would add a lot of complexity and that might make it harder.”

Rather, Mintz says the issues moving forward on a potential APP will centre around discussions on how much Alberta is entitled to and, most importantly, how Albertans feel about leaving the CPP.

Heading into this fall’s legislative session, the Alberta government noted it would introduce legislation that would set the legal framework for a potential provincial pension plan, including criteria around a referendum that could come in 2025.

Horner previously stated that a referendum on leaving the CPP will be based on a “high level feeling from many sources” following consultations with Albertans that will extend through to spring 2024.

Mintz says that while there are very significant benefits to Alberta’s creating its own pension plan, he believes Albertans will want to stay.

“I believe they really just want a federal government that takes a much more cooperative stand on issues – not the hammer-like approach it’s currently taking,” he says.

“That’s why I think this is a negotiation.”