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How the Alberta Pension Plan would impact the future of young Albertans

By Matej Harsany, October 27 2023—

Premier Danielle Smith is pushing for Alberta’s departure from the Canada Pension Plan (CPP) in favour of establishing a provincial Alberta Pension Plan (APP). According to a third-party report by LifeWorks commissioned by the Alberta Government, this could usher in an estimated $5 billion in annual savings and a contribution rate that’s 3.63 per cent lower than the CPP’s current rate.

“These contribution rates for an APP translate into an estimated aggregate contribution savings of approximately $5 billion in the first year of an APP’s operation, due to the lower contribution requirements for the Base APP,” reads a statement from the LifeWorks report. 

The LifeWorks report grounds its findings on the premise that the APP would be entitled to a portion equivalent to 53 per cent  of the CPP assets, based on their interpretation of the CPP Act. 

“Using publicly available information, we estimate this asset amount to be $334 billion,” the report from Lifeworks adds. 

Dr. Trevor Tombe, an economics professor at the University of Calgary, recently published his own analysis on the potential APP. In his report, Tombe challenges the findings of the LifeWorks study, particularly in areas concerning the contribution rate and the entitlement to CPP assets.

“I estimate an APP minimum contribution rate of 8.2 percent, compared to the CPP’s 9.5 per cent. This is in sharp contrast to a recent government-commissioned report, which found a contribution rate of 5.9 per cent,” said Tombe. “I assume for the baseline scenario that 20 per cent of total CPP assets ($120 billion in 2025) go to a separate Alberta Pension Plan,” Tombe states in his report. 

The provincial government has made significant investments in exploring the feasibility and public opinion of the APP.  As part of its outreach, the Government of Alberta has launched a survey on its official website, seeking feedback on the APP structure. The transition to an APP will only proceed if it is explicitly endorsed by Albertans through a referendum.

A recent poll conducted by Abacus Data, which surveyed 500 Albertans, revealed stark differences in views on withdrawing from the Canada Pension Plan. Among the younger demographic, aged 18 to 29, 29 per cent expressed strong support for the idea, and 31 per cent were against it. In contrast, 64 per cent  of those aged 60 and higher, showed strong opposition to leaving the CPP. 

In an interview with the Gauntlet, Tombe delved into the impact an APP would have on students in particular. Firsty, Tombe pointed out the sustainability and robustness of the current CPP. 

“The CPP is perhaps the most sustainable pension system in the advanced industrial world,” said Tombe.  

When discussing the lower contribution rates of an APP, which may appear attractive to young adults just entering the workforce, Tombe offered a word of caution. He pointed out that these lower rates hinge on Alberta’s generally younger population demographic. However, demographics are subject to change over time. Additionally, he highlighted that, like any pension system, an APP would come with its own set of intrinsic risks that need to be carefully considered.

“We have a young population because of favourable inflows of generally young workers,” said Tombe. “If those inflows cease, then a slight majority of Alberta’s overall advantage in terms of sustaining a pension plan evaporates. Put aside other risks that any pension plan would face – investment returns not working out, future financial crisis etc.”

Tombe emphasized the inherent uncertainties that come with long-term financial planning, especially for younger individuals.

“If you’re fifty, the next 10 years are fairly easy to forecast, but if you’re someone who’s just starting out, you’re not collecting a pension until the 2070s,” said Tombe.   

The administration and management of an APP are not without their own uncertainties. One practical consideration is the scenario where students or young professionals might wish to work outside of Alberta. Tombe highlighted the Quebec Pension Plan (QPP) as an example of this process, noting its harmonization with the CPP, which facilitates smooth interprovincial migration for its contributors. However, he cautioned that such seamlessness is not a given with an APP, especially if it aims to offer greater benefits than the CPP. 

“What Alberta is proposing is that the APP would have larger benefits than the CPP. That would make it more difficult to maintain portability. Also, one of the rules to withdraw from the CPP currently is that you replace it with a plan that is comparable.”

While Tombe acknowledges the potential of an APP, he underscores the inherent risks associated with such a significant policy change. 

“I believe it is a rational and intelligible policy idea where there are benefits and costs to consider,” said Tombe. “Base your support on a broad range of facts related to both costs and benefits. There’s uncertainty, don’t hang your hat on any single estimate.” 

His message to students and young Albertans is clear: approach the idea of an APP with a discerning and analytical mindset. Given the long-term nature of pension plans, any decision made now will have lasting implications.

“Unlike other policies, this is something that needs to last for at least a century and beyond and is irreversible. Once we leave, we can’t go back unless two-thirds of the provinces decide to let us, which makes this a serious and consequential decision,” said Tombe.

Albertans can share their views on the matter by participating in the survey available on the Government of Alberta website.

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