Citizens Centre for Freedom and Democracy - The Alberta Pension Plan

The Alberta Pension Plan - an idea whose time has come

There is growing demand in Alberta for the provincial government to opt out of the Canada Pension Plan and create an Alberta Pension Plan.

The idea is not new. People in politics and government have been talking about it for over 10 years. Most recently, former Alberta Treasurer Stockwell Day was seriously considering it when he left Alberta for federal politics in 2000.

Since then, many of Alberta's civic, business and municipal groups have started pressing the provincial government to proceed. The sooner Albertans start to invest in their own provincial plan, the better off they will be.

Why opt out of the Canada Pension Plan?

With the last (2003) round of CPP premium increases, the Canada Pension Plan now takes some $4 billion annually from working Albertans. Little more than half of that comes back to the province in the form of pension and other benefits.
The remainder stays under federal control, partly to pay benefits in other provinces, and partly to be invested by a federally-appointed board.
Still, even at the present high rate of contribution (9.9% of earnings), the CPP will carry a permanent unfunded liability.
The CPP is a "one-size-fits-all" plan that doesn't respond to regional needs and priorities. Moreover, it parallels provincial disability programs.
Because of the CPP's flawed design, it seriously penalizes younger Albertans who pay far more into the scheme than they will ever get back in benefits.
Albertans are proportionally the highest net contributors to the CPP (see graph). For instance, in 2001 (the last year for which complete numbers are available) Albertans paid 57% more into the plan than they received in benefits, by far the widest discrepancy in the country.

Why an Alberta Pension Plan would work better

Social programs are a provincial responsibility under the Canadian Constitution, and the CPP Act allows provinces to opt out of the federal plan on three years' notice (as Quebec did right at the beginning).
Albertans would pay lower premiums and save about $320 each, or $540 per working family, annually.
Billions of dollars now sent to Ottawa would be managed in Alberta.
Alberta would reduce its exposure to federal mismanagement, and re-establish the historic distinction between federal and provincial constitutional responsibilities.

Questions and answers

Would people who paid into the CPP lose their benefits?

No, there would be no interruption or reduction in benefits. Benefits would remain the same under the Alberta Pension Plan as under the Canada Pension Plan. This is required by law as well by common decency.

Could people move around the country, working and retiring where they wish, without losing their benefits?

Yes. Transferring pension benefits in and out of Quebec has never been difficult, even though the plans are completely separate. The same rules would apply to Alberta.

Doesn't this open up a huge new financial liability for Albertans?

No. Albertans are already contributing more than their fair share to the enormous unfunded liability of the federal plan. By transferring their share of the liability from the federal to the provincial government, along with their premium contributions, Albertans can handle the problem themselves, as they did the provincial debt that built up in the 1980s and early 1990s.

Isn't a national plan safer? What happens if Alberta's economy falls apart?

Even in a worst-case scenario, with the economy permanently as weak as it was after Trudeau imposed the National Energy Program, Albertans would still come out ahead with their own pension plan. Alberta has a high natural birth rate, high workforce participation and low reliance on immigration. And just as Quebec uses the QPP to help preserve its culture, so should Alberta.

Wouldn't a smaller provincial plan cost proportionately more to administer than a large national one?

According to the best research, the increased cost of management is more than offset by the advantage of keeping Alberta contributions in a separate plan. The net savings, with all factors considered, would have amounted to $530 million in 2001, according to William Robson of the C.D. Howe Institute.

Can we trust the provincial government to do this right?

Yes. As with the Canada and Quebec plans, politicians will not use the pension funds of the electorate for short-term political gain. Even Chretien didn't do that with the new CPP Investment Fund.

Isn't this a move toward separatism?

No. It's a way of restoring the autonomy the founders of our country intended all provinces to have when they wrote the Canadian constitution in 1867.

How would this affect premiums in the rest of the country?

The effect in Quebec will be nil, because it operates its own plan. Premiums elsewhere in English Canada might have to rise slightly above 10% (from the present 9.9%) to compensate for Alberta's departure.

Will this cause resentment?

Perhaps. However, it will also create pressure across the country to reform the CPP, as Alberta has suggested, by building in private alternatives as other countries are doing. There is no good reason for a country like Chile to have a better public pension system than Canada.

Shouldn't Alberta work with other governments to reform the CPP instead of pulling out of it?

Obviously Albertans should continue pressing for CPP reform. However, unless they use the financial leverage the constitution gives them by establishing their own plan, other Canadian governments will ignore them, as in the past.

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