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A look at the numbers and assumptions behind Alberta's pension report

The Alberta government has released a report that it commissioned on the financial implications of the province leaving the Canada Pension Plan. Here's a look at some of the key findings and assumptions of the report.

Why is Alberta considering its own pension plan?

Premier Danielle Smith says Alberta's relatively younger population and higher pensionable earnings means the province pays more into the plan than it needs to fund benefits paid to Alberta seniors.

Smith says the province could come out ahead if it decides to leave the federal pension plan.

What would be the expected difference in payments under the province's proposal?

Alberta's demographic advantage — it currently has more people paying into their pensions than withdrawing funds — means provincial residents would only have to pay 5.9 per cent of their income toward a provincial pension scheme, according to the report prepared by consultants at Telus Health subsidiary Lifeworks. That compares favourably with the current legislated rate of 9.9 per cent for the Canada Pension Plan.

The province says that difference would mean yearly contribution savings of up to $1,425 for every Alberta employee and employer.

In contrast, a working paper released Thursday by University of Calgary economics professor Trevor Tombe estimates the province would need to implement a minimum contribution rate of 8.2 per cent, significantly shrinking the proposed benefit.

Why the big difference in expectations?

A crucial factor in figuring the possible benefits is deciding how much of the current roughly $575 billion in current CPP assets an Alberta pension plan might get. No province has ever split from the CPP, so the laws dictating it have not been tested.

The report released by the province assumes Alberta would get $334 billion, or about 53 per cent of all assets.

Michel Leduc, head of public affairs at fund manager Canada Pension Plan Investment Board, said that while it respects the right of any province to leave the plan, the report's assumptions about the transfer are way off.

"We can't find any legal or actuarial reasons that would support it," he said of the $334 billion transfer amount.

“We believe that the framework would see a claim that is much closer to what Alberta has contributed to the Canada Pension Plan since inception, and that's not 53 per cent, that's closer to 16 per cent."

Tombe figured Alberta would reasonably be able to claim about 25 per cent, or $150 billion, of CPP's assets, which is the number he used to calculate the 8.2 per cent contribution rate.

Why is there disagreement over Alberta's share of the pension pie?

A key question if Alberta leaves the national pension fund is how much of its investment returns it can claim.

Leduc says that close to $400 billion of CPP's total assets come from investment returns, a much higher share than outright employee contributions and a number that would grow more slowly with a smaller fund size.

Dividing the assets would force new legal interpretations of the legislation governing the CPP, but as Tombe notes, a key clause says provinces are entitled to investment returns derived from their contributions.

All sorts of questions come up in trying to calculate the right division, including whether Alberta would have been able to make the same returns had it gone it alone during these past decades of investments.

Leduc said the returns were possible thanks to a “scale that is achieved through being a national rather than a smaller plan.”

What are some of the other risks in the province's report?

The Lifeworks report found that Alberta's demographic advantage would likely last until somewhere around 2050.

Leduc, however, urged caution with basing benefits on such long-term outlooks, noting that while he hopes Alberta's economy continues to thrive, its economic base could also see shifts.

"You can't assume that the current energy sector will be able to continue to attract all of those young people from across the country," he said.

“Demographics is a very tricky thing to predict, and past performance on demographic is a very dangerous thing to assume for the future."

This report by The Canadian Press was first published Sept. 21, 2023.

The Canadian Press