This article originally appeared in the National Post.
By Jack Mintz, September 21, 2023
On Thursday the Alberta government plans to release an updated Lifeworks report on the Alberta Pension Plan — Lifeworks being the former Morneau Shepell, now part of Telus Health. The results are dramatic. Assuming the same pension benefits paid to Alberta retirees as under the Canada Pension Plan, Alberta employers, employees and self-employed workers would pay $5 billion less in payroll contributions in the first year.
Commissioned in 2020 by the United Conservative government to explore the feasibility of a provincial plan, the report estimates that APP contribution rates for basic CPP benefits would fall from 9.9 to 5.91 per cent, split between employers and employees. That amounts to yearly savings of $1,425 for each Alberta employer and employee and $2,850 for the self-employed.
The report makes clear that an APP could be a huge win for Alberta, contrary to repeated claims by the NDP in last June’s provincial election. By cutting payroll taxes with no reduction in pension benefits, Alberta could both attract more investment and make life more affordable for working people. What makes all this possible, of course, is Alberta’s favourable age structure, with its younger population and higher employment rate than in the rest of the country. This also translates into a large asset transfer when the APP starts up as explained below.
But that makes the APP a ticking time bomb for the rest of Canada, which is already facing decades of low per capita economic growth even without more growth-killing taxation. Except for Quebec, which already has its own pension plan would therefore be unaffected, Canadians in the other eight provinces would have to pay higher CPP contributions to make up for Alberta’s withdrawal from their national plan. As for Alberta, if leaving the CPP works out well, the province and others may seek further control over their destinies under “Fair Deals,” leaving Ottawa less able to manage federal-provincial relations and thus ultimately undermining Canadian economic prospects further.
The primary source of Alberta’s gain would be a $334-billion asset transfer when the APP takes over CPP liabilities owing to Albertans. Under current CPP rules for a province’s withdrawal, Alberta would be entitled to a net transfer calculated on the assumption it had never joined the CPP, which began in 1966. That amount would equal its past CPP contributions, net of benefits paid to Albertans and administrative costs, plus associated investment returns. Lifeworks figures the total asset transfer due is about half of CPP’s current net assets.
Given Alberta’s younger population, higher income and lower unemployment rates, it is not surprising the province has been a huge net contributor to the CPP for the last 57 years. If anything, Lifeworks takes a conservative approach in assuming Alberta’s age dependency would catch up to the rest of Canada’s, so that by the second half of this century it would have contribution rates roughly similar to the CPP. On the other hand, if Alberta continues with higher incomes, less unemployment and a younger population than the rest of Canada, APP contribution rates would be even lower than those estimated in the report.
But life is uncertain. Investment performance in a turbulent world may be lower in coming decades, or the energy transition may slow Alberta’s growth. Even then, however, Lifeworks estimates the APP contribution rate would remain well below the CPP’s 9.9 per cent — still a good deal.
The release of the Lifeworks report is only the first stage of a process that needs to answer a host of questions. Should the APP be a prudent investor that only maximizes investment returns or should it take a riskier approach and support provincial economic development as Quebec has done, even if this compromises financial performance? Should Alberta choose a single investment manager or several, including Alberta Investment Management and CPP Investments? Should some of the APP surplus be used to raise pension benefits, not just reduce contributions?
The granddaddy of unknowns is the federal reaction to an APP. The federal government could unilaterally change the formula used to determine the $344-billion asset transfer, especially if it has support from provinces unhappy with the prospect of higher CPP payroll taxes. If the split of CPP net assets were based on population rather than the value of past net contributions, Alberta would net about $85 billion to cover liabilities owing to existing retirees. The APP could still be worth it but a major reduction in payroll taxes at the outset would not be feasible.
Ottawa changing the rules of the game would further inflame a province already unhappy with its outsized but unappreciated contribution to the rest of country. Robert Mansell of the School of Policy Studies at the University of Calgary has calculated that the transfer of wealth from Alberta to other provinces from 1960 to 2021 has been $645 billion (in 2021 dollars). By 2027 the cumulative contribution should be close to $750 billion. The APP asset transfer of $344 billion would be a rebate of less than half that.
After eight years of confrontation over energy regulation and climate policies, Ottawa-Alberta relations are at rock bottom. If the Trudeau government wants to avoid the further fracturing of national arrangements like the CPP, it could try reducing tensions rather than stoking them. A good start would be bilateral agreement to negotiate a realistic path to reducing emissions without the unilateral federal regulation that is squandering Canada’s resource wealth despite our allies’ obvious need for secure energy.
For Alberta, the APP is a no-brainer. For the rest of Canada (except Quebec), it will be a headache. As Pierre Trudeau said in 1972, no doubt the universe is unfolding as it should. That doesn’t mean non-Albertans are going to like it.
Jack Mintz is the President’s Fellow at the University of Calgary’s School of Public Policy and Distinguished Fellow at the Macdonald-Laurier Institute.