A new paper from the CD Howe Institute warns Alberta's plan to withdraw from the Canada Pension Plan to form its own would "gamble the retirement security of Canadians."Author Bob Baldwin, Proprietor of Baldwin Consulting and Co-Chair of the Pension Policy Council of the CD Howe Institute, penned his concerns in Pension Roulette: The Risks and Consequences of Alberta Leaving the CPP. Baldwin argued that establishing an Alberta Pension Plan (APP) would entail assuming significant risks for relatively modest and uncertain long-term benefits.The APP’s appeal largely hinges on transferring 53% of the CPP assets, totalling $334 billion. Baldwin notes this figure stems from a reading of the CPP legislation and suggests alternative, justifiably smaller asset transfers could occur, with a reasonable transfer of assets.The report outlines some basic aspects of the CPP that are relevant to the possibility of Alberta leaving the CPP. It examines the financial consequences of the claim, both for the new APP and the smaller CPP. Finally, it offers thoughts on the risks an APP might face, assuming the province withdraws a more reasonable amount from the CPP.“The numbers don’t add up,” Baldwin explains. “If other provinces use the same rationale for Alberta’s current proposed withdrawal, the claims on CPP assets would be more than 100%. The question whether Alberta should leave the CPP in favour of an APP has consequences that extend beyond Alberta.”Furthermore, Alberta’s tally of contributions made minus benefits paid to its citizens ignores labour mobility. People can work in Alberta and make contributions there but later move to another province and continue to collect benefits. Alberta’s demographics, with its younger, higher-earning workforce, are now favourable to keeping contribution rates relatively low. But over decades, demographics can change significantly, undercutting the province’s assumptions about future contributions.Quebec's journey offers a warning. From the outset, Quebec chose not to participate in the CPP, instead managing its own Quebec Pension Plan (QPP), which is largely similar. Baldwin cautions that during the planning stages of the CPP and QPP in the 1960s, Quebec was believed to have a demographic advantage that would persist for the next 30 years. That faded over time, forcing Quebec to increase its QPP base contribution rate beyond that of the CPP to sustain similar benefits to the national plan.Baldwin insists major unanswered questions surround the governance of the APP. How will the benefits compare to those of the CPP? Once established, will the APP’s structure diverge from the CPP’s? How will benefits and contributions adjust to shifts in Alberta’s economic and demographic landscape? Will governance be managed as an internal government function, or will it operate at arm’s length?The author concludes “Albertans face a decision. However, they must be aware of the risks to the APP’s financial stability and to the interprovincial mobility of individuals entering or leaving Alberta. The Alberta government must clarify its long-term vision for the APP to facilitate an informed choice.”Baldwin is an Ottawa-based consultant who has worked on pension issues for more than 30 years. He worked for the Canadian Labour Congress for all but three years from 1976 to 2005, the last 10 as the director of Social and Economic Policy.The CD Howe Institute is an independent not-for-profit research institute whose mission is to raise living standards by fostering economically sound public policies. It is named after a federal Liberal politician who was a cabinet minister from 1935 to 1957.
