In the press release announcing the government’s report on an Alberta Pension Plan (APP), Jim Dinning, who’s been tasked with engaging Albertans on the question of an APP, is quoted as saying “The job of the Panel is straightforward. We ask Albertans to look at the facts, participate in the discussions and then tell us what they think about an Alberta Pension Plan and the different options we must consider.”
That’s a lovely sentiment by the former provincial finance minister, who was once vehemently and vocally opposed to the very concept of leaving the Canada Pension Plan (CPP) and creating a provincial alternative. The problem, however, is that the report, and the government’s entire case for leaving the CPP, are premised not on “the facts”, but rather on a flawed frame and a fabricated number.
In her opening comments at the government press conference, Premier Smith suggested repeatedly that Alberta and Albertans get a raw deal on the CPP because we pay “much more into the CPP than Alberta seniors get back in pension benefits.” That statement is the dominant frame behind the government’s rationale for an Alberta Pension Plan. It is also a complete misrepresentation of the way the CPP works.
Every Alberta worker pays into the CPP on the exact same basis as everyone else in Canada, and will receive pension benefits on the exact same basis as everyone else in the country. Albertans are not “subsidizing” the plan or paying more than their fair share. Albertans are simply paying into a plan that they will eventually benefit from, regardless of where in Canada they choose to live.
That’s the beauty of the CPP — your contributions are calculated the same way regardless of where in the country you work, and your benefits are calculated the same way regardless of where in the country you retire. Premier Smith’s calculations and justifications fully exclude the significant number of people who have worked in Alberta at some point in their lives and retired elsewhere. She’s only counting the benefits received by Alberta seniors, and that seriously skews the numbers and gives a warped image of the plan itself. For the premier to premise this whole venture on a flawed frame in the hopes of riling up some anti-Canada pro-Alberta knee-jerkism is seriously problematic.
Just as problematic, however, is the serious misrepresentation of numbers in the report itself. Premier Smith and Finance Minister Nate Horner boasted that leaving the CPP and creating an APP would “save Albertans $5 billion in the first year alone.” That would mean Albertans would save up to $1,425 per year in reduced premiums, and businesses would save as much per worker per year in their matching premiums.
Lower premiums, better benefits, and greater security. If it all sounds too good to be true, it’s because it is. All of those numbers and benefits stem from one base assumption — that upon leaving the CPP, Alberta would be able to bring home $334 billion of the CPP’s current asset base to start its own pension plan. A figure, by the way, that represents 53% of all the funds currently held by the Canada Pension Plan Investment Board.
And how do we turn a single Canadian province into the owner of more than half of the entire country’s contributions to the CPP? It turns out, with a lot of wishful thinking and a seriously flawed made-up formula. The $334 billion claimed by the report as our own is derived by using a formula that was essentially invented by the folks at LifeWorks, the company engaged by the provincial government to draft the report. It has no basis in legislation or law.
The Canada Pension Plan Act does include a formula (CPP Act, s. 113(2)) for calculating the amount to which a province leaving the plan would be entitled, but that formula has remained largely unchanged since 1966, despite the changes in how the plan operates. Using that formula would yield a result of $637 billion as the amount of base asset transfer that Alberta would be entitled to by 2021 numbers — approximately 117% of the CPPIB’s assets. To put that number into context, if all the provinces were to choose to leave the plan, their collective base asset transfer entitlement would equal about 900% of the CPP’s assets. That number is clearly unreasonable, and the formula in the act needs to be amended.
During the government press conference, both Danielle Smith and Nate Horner tried to assert that the formula is totally valid, because it had been revised in 1997 and 2019. But the truth is that the mechanics of the formula itself were not reviewed nor revised on either of those occasions.
In fact, even the LifeWorks report contradicts the premier’s statements about the validity of the formula when it states that “[a]pplying this literal reading of the CPP Act would result in an unrealistically large Base asset transfer figure.” While writing the report, Lifeworks could have acknowledged that the legislation would need to be changed so that the formula better reflects current reality and explained that this would put a number of different possibilities and outcomes on the table. Instead, they opted to simply invent a brand-new formula, which they refer to as an “alternate and reasonable interpretation.”
Legislation, however, does not work that way. You don’t get to unilaterally devise alternative interpretations that suit your needs and then arbitrarily decide they are reasonable. Especially when what you call “reasonable” is so absurd that the numbers just won’t add up. Consider this: using this formula, if Ontario (with its larger contributor and contribution base) were to decide to leave the CPP before Alberta, there would not be enough money left for Alberta to take their identified asset transfer. Or put another way, as CBC reported from their conversation with Michael Leduc of the CPP Investment Board, “If other provinces used the ‘alternate formula’ and demanded their shares be paid out too, he explained, there would be a negative balance by the time Ontario, British Columbia and Alberta left.” Calling this fabricated formula a reasonable alternative, therefore, is a bit of a stretch for anybody who understands what the word “reasonable” means.
That’s the biggest flaw in the LifeWorks report: the $334 billion yielded by this creative and fantastical formula is the premise that rules its entire narrative. Every claim made in the report and touted by the premier is entirely dependent on this number. Without it, the purported savings, increased benefits, and entire value proposition vanish without a trace.
According to a newly published paper by U of C economist Trevor Tombe, a more realistic number for the reduction in the contribution rate to an APP compared to the CPP would be in the neighbourhood of 1.3%. He adds that demographic risk — for example, net migration rates approaching the national average — would further reduce that gap between APP contributions and CPP contributions. Tombe also points to an increased political risk. With the CPP, no one government is in a position to dictate a change to the investment mandate. With an APP, the Alberta government would have full power to alter the investment mandate of the plan.
The only one whose interests are actually served by this entire campaign for an APP is Danielle Smith. She’s been a lifelong fan of the infamous Alberta Firewall Letter (where the idea of an Alberta pension plan was first floated), its core Alberta sovereigntist ideology, and all of its authors. Moving forward on the APP would also allow her to retain the support of the UCP’s far right, whose money and votes helped eke out a victory in the UCP leadership race.
And of course, history has shown that the surest way for Alberta conservative premiers to shore up their popularity is to launch a war with Ottawa and other provinces, and threaten to tear down national institutions. Whether it’s public healthcare, environmental regulations, or the RCMP, these battles have always been more about ideology and political posturing than they have about the long-term interests of Albertans. The drive for an APP is no different. The added benefit for Danielle Smith, as she has articulated on a few occasions, is that it would give her the power to determine how and where those pension funds are invested — a clear recipe for disaster by anybody’s assessment.
Ultimately, Albertans are being asked to engage in a “fact-based discussion” that is lacking in “facts” from the get-go, since the parameters for reasoning are limited by a flawed premise and a fabricated set of numbers. What’s more, the initial engagement tool launched by Dinning’s Engagement Panel at the press conference is no more than an online survey. Worse still, the survey itself at no point asks whether Albertans want an APP or if they’d rather stay with the CPP. Instead, it starts from the assumption that we will create an APP and all of the questions are about how to structure the plan, how to manage investments, and what to do with the supposed savings and extra money the plan will have. Jim Dinning says he wants Albertans to participate in the discussion and then “tell us what they think about an Alberta Pension Plan.” In practice, he means “tell us why you agree with us that an APP is a good idea.”
Clearly, if Albertans want to engage with facts and truly discuss the issue, they will have to do so despite the government’s best efforts to muddy reality and suppress debate. We’ll need to ignore the invented numbers and flawed framing, and look hard for the facts and the truth. Here’s hoping we’re all up for that task — our retirement security is riding on it.