Prospect of a standalone pension plan in Alberta should be on voters’ minds

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The question of Alberta breaking away from the CPP to establish a stand-alone provincial pension isn’t likely to figure prominently in the upcoming election campaign. But it should still be on voters’ minds, as the United Conservative Party says a province-wide referendum on the issue could come as soon as next year – if they win government again.

While the opposition NDP has committed to keep the province’s workers and retirees within the Canada Pension Plan, there’s no assurance Albertans will have more information about the UCP’s thinking on the matter before voting day in May. According to Finance Minister Travis Toews’s office, there’s no public release date for a long-awaited consultant’s report examining the costs and benefits of a provincial pension plan, which the government says is now being tweaked with more recent data.

But a spokeswoman for Mr. Toews said the draft report is “favourable” to Alberta going it alone.

Since days of Jason Kenney’s Fair Deal panel, the UCP has talked about holding a referendum on the question of whether Alberta should stake part of its autonomy push on a pension system. But the possibility of putting the question to voters in conjunction with 2021 municipal elections was eventually kiboshed by the former premier. Premier Danielle Smith came into office last fall keen to the Alberta pension idea, suggesting a referendum to let Albertans decide could come as early as this spring’s election. But then she, too, decided to kick the can further down the road.

Mr. Toews’s office now says a government-initiated referendum on the pension question wouldn’t be called until 2024, “at the earliest.” This means the governing party understands there’s significant political risk in the issue, and doesn’t want a provincial pension plan to become a question in the election campaign.

The Alberta pension idea, to many, seems a solution in search of a problem. The scant polling on the issue hasn’t shown any overwhelming enthusiasm for the idea. It’s another financial unknown or peril when economic uncertainty is already riding high. And it’s hard to square breaking away from the security of the $540-billion CPP fund, which the country’s Chief Actuary recently said is suitably financed for the next 75 years.

With its mandatory contributions, CPP covers virtually all employed and self-employed people in Canada, excluding Quebec (which has operated its own plan for almost six decades). The federal government created the Canada Pension Plan Investment Board in 1999 to professionally manage the plan’s money.

But however hot and cold the UCP seems to the idea of a separate provincial plan, it’s an idea clearly still in play.

Why even consider it? Its appeal rests in Alberta’s high incomes and labour participation rates, and younger population compared with other provinces and territories. It means the province’s workers are subsidizing CPP, according to the Fair Deal Panel report, which noted Alberta workers represented 16.5 per cent of the total contributions to the CPP in 2017, while Alberta retirees consumed 10.6 per cent of expenditures. That means a just-Alberta plan could be financed with lower contribution rates.

It’s also about pushing back against a rest of Canada that doesn’t always acknowledge the economic contribution of Alberta’s oil exports – as the Fair Deal Panel said, a separate pension would “deliver a clear message to Ottawa and fellow Canadians.”

The idea of a separate Alberta pension appeared to be Mr. Kenney’s favourite proposal out of his Fair Deal Panel for asserting Alberta’s autonomy – he often singled it out. And his point man on the file was David Knight Legg, the Lethbridge-raised investment banker turned principal adviser to Mr. Kenney. Mr. Knight Legg is now an adviser to technology and investment firms based in Singapore, but still an ardent booster of an Alberta pension plan.

“Alberta funds Canada – and has been doing so for decades,” he said. “That won’t stop across most files, but there are specific areas where Albertans can back themselves and manage their own destiny within the federal structure of Canada. One of those areas is the provincial governance of pensions.

“The reason for Alberta’s economic success is that we have created the most attractive climate for entrepreneurs and investors in Canada. This in turn has created persistently higher demographic and economic momentum than the rest of the nation even during downturns.”

But the list of potential pitfalls is long and daunting. Alberta’s economy is making steps toward being more diversified, but how long can Alberta be assured its fossil-fuel wealth will keep it at the top end of the country’s financial pecking order?

Could a major shift in demographics or economics mean the provincial pension plan could someday need much higher contribution rates from workers and employers than anyone expected? Will immigrants or Canadians from other parts of the country be dissuaded from settling in or working in the province? How much would administering the plan cost, and what entity would do it?

And, do you trust the Alberta government to set the parameters for a new pension plan?

Far less discussed is the yet-unquantified set of pitfalls for Canada as a whole. It is true that Alberta punches above its weight when it comes to economic contributions. And it’s also correct when provincial politicians say given the current set of economic and demographic circumstances, Albertans might (caveats noted above) pay less in rates for the same level of pension benefits.

But by that logic, people in the rest of Canada would have to pay more, or receive less, in the CPP system if Alberta withdraws. “If Alberta chooses to allocate its pension capital directly like Quebec does, that will make the pension pools that Alberta no longer subsidizes more expensive,” Mr. Knight Legg noted.

The Alberta pension question is significant to the rest of the country, far beyond other Fair Deal-type proposals such as the province establishing its own police force, writing its own constitution or trying to get the attention with an equalization referendum. The fight that would play out in negotiations that would be involved in Alberta withdrawing both its continuing contributions, and tens of billions of dollars from the CPP fund, could rival anything seen in this country before.

As Albertans think about their votes in elections or pension plan referendums, there are two big questions they should keep in mind: What are the benefits and risks for the province’s workers and retirees? And what is the gigantic downside for the country’s cohesion?