The benefits to Albertans of an Alberta Pension Plan are clear and material. If Alberta had its own pension plan, then benefits for Albertans would increase by about 50% or contributions would be reduced by more than a third. This is true even if Alberta continues to use the same CPP investment manager and invests in the same things. This is confirmed by an independent report done by former Liberal Minister of Finance, Bill Morneau’s firm now called LifeWorks. The Province chose a firm associated with a prominent Liberal to ensure it was independent.The Canada Pension Plan, like so many federal programs, is a hidden transfer program. It effectively makes a fiscal transfer from Albertans to residents of other provinces. (Yes, I know individuals pay into the plan, not the province of Alberta, that’s why I said a fiscal transfer from Albertans.) It is beyond me why anyone is surprised a Canadian Federal program involves fiscal transfers between provinces. The Prime Minister’s strident letter to Premier Smith saying they need Albertans in their plan is further confirmation.The main thing my new friends on Twitter ("X") don’t seem to understand is the pay-as-you-go component of the CPP. While after 1990 reforms, the plan was partially funded, it still largely operates on the basis workers today pay the pensions of people retired today, they trust that workers in the future will pay their pension. So the money you put in today is not used to pay your pension.One of the number of questions from sceptics is how is it possible 12% of the population is owed 52% of the pension assets in the Canada Pension Plan? A plain read of the relevant section of the law reveals the answer is math. The underlying reason, is Alberta is younger, has fewer retired people and puts in more money than it takes out. This has allowed residents of provinces with older demographics to take out more money than they put in.I personally find the Canada Pension Act clear. In particular, the most germane section, this being the formula for calculating the return of pension assets.Provinces only agreed to join the CPP in 1965 on the condition they could withdraw. According to the New York Times on April 2, 1964, Ontario Premier Robarts was the deciding factor of whether a CPP would go forward. This was because Quebec, Canada’s most populous province at the time, had already decided not to join. Premier Robarts’ condition was if a province withdraws, they should be put in the same position as if it had never joined.To withdraw, a province must agree to set up a similar plan to the Canada Pension Plan and give three years notice. (For those extolling all the things they like about the Canada Pension Plan, rest easy knowing the Alberta plan by law, will need to provide substantially the same thing.) The formula for return of pension assets follows:All contributions plus all investment returns, minus all disbursements minus administration costs.On page 48 of the LifeWorks report they list year by year: the contributions, disbursements and applicable rate of return for Alberta. They calculate it using an easy to understand spreadsheet format, as if it was a segregated account from the beginning. This approach meets Premier Robarts original condition. After 60 years of compound returns on Alberta workers putting more money into the plan than they took out, it will add up to approximately $342 billion. For those provinces whose workers have taken more out than they put in over those same years, no investment returns were earned. Top ups are a common occurrence for pensions that were under contributed to and Alberta’s withdrawal could lead to the need for such a top up for the CPP.LifeWorks does note certain data is not publicly available, for example details on what provinces non-resident plan members are from. They include a best estimate of the impact of these factors with a low and high case to be precised with the actual data when available. They also address the issue of portability and note Quebec has set precedents for this issue. The conclusion does not materially change.To put Alberta in the same position as if it had never entered the CPP, and to meet a plain reading of the CPP Act, it should be transferred its legal share of pension assets. And going forward Albertans would have a choice of materially higher benefits or lower contributions.It may be a surprise to many how significant Alberta’s fiscal contributions are to the CPP. If nothing else comes from the Lifeworks report than illustrating how unbalanced the Federation is from a fiscal point of view it will still be worthwhile. Mr. Trudeau, feeling compelled to respond to Alberta, shows that already. Mr. Trudeau will hopefully realize Alberta is a golden goose for Canada and persistent attacks by the Federal Government on its economy, will result in it not contributing to programs such as the CPP, one way or another.Guest columnist Michael Binnion is the Executive Director of the Modern Miracle Network, whose mission it is to encourage Canadians to have reasoned conversations about energy issues.
