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Editorial: Inquiry needed to examine the national pension plan

Alberta Premier Danielle Smith wants her province to leave the Canada Pension Plan and start one of its own. Smith argues an Alberta-only plan would be fairer to Albertans and save money.
Alberta Premier Danielle Smith speaks about healthcare reforms during a news conference in Edmonton on Wednesday November 8, 2023. THE CANADIAN PRESS/Jason Franson

Alberta Premier Danielle Smith wants her province to leave the Canada Pension Plan and start one of its own. Smith argues an Alberta-only plan would be fairer to Albertans and save money. The premier bases this claim on a report put together by the consulting firm LifeWorks.

If Alberta withdrew from the CPP, the firm claims, the province would be entitled to an asset refund of $334 billion. That’s more than half of CPP’s asset base.

The province would also save $5 billion a year in contributions, since an Alberta pension plan would cost less than the CPP.

A series of questions arise. First, would it be legal for Alberta to leave the CPP?

It appears the answer is likely yes.

When the plan was set up in 1966, provincial participation was made voluntary. Quebec made immediate use of that provision, turning its back on the national plan and setting up its own QPP.

In passing, Quebecers have paid for that piece of foolishness. Because the province’s population is smaller and older than Canada’s as a whole, the QPP costs residents 10 per cent more for similar benefits.

A larger question is whether the LifeWorks report is accurate. Several experts in the pension field say no. They argue the authors consistently gave Alberta the benefit of every doubt in calculating how much the province could save.

Yet while that may be so, a well-regarded economist at the University of Calgary, Trevor Tombe, reworked the math. He came to the conclusion that Alberta would indeed benefit financially by withdrawing from the CPP.

The main reason is that for many years the province’s population has been younger than Canada’s. That means on a per capita basis, there are more people contributing to CPP than benefiting, compared with other regions of the country.

Tombe found that exiting the CPP would entitle Alberta to between 20 and 25 per cent of the CPP asset base, less than half the LifeWorks figure, but still around $140 billion.

He also estimated a lower contribution rate would be needed.

Notably, using the same math, B.C. could also benefit. Tombe’s numbers show that if B.C. set up its own plan, the province could save around $1.8 billion in annual contributions, not a small matter.

So do go-it-alone pension schemes make sense? One obvious flaw is that if provinces create their own plans, the fact that their populations are much smaller brings larger risk factors into play.

To make a provincial plan actuarially sound, higher contributions would likely be needed over the long haul, as happened in Quebec.

On the other hand, legitimate issues do emerge from this discussion.

If some provinces are continually contributing more, per capita, than they receive in benefits, that needs examining. CPP was never intended as an income equalization project.

There is also the concern that CPP’s asset base has become a political football. Repeatedly, when trying to reassure foreign markets about Canada’s escalating debt levels, federal Finance Minister Chrystia Freeland has taken the fund’s holdings into her calculations.

Yet those assets are, by law, held beyond government reach. Freeland is making free with the truth by taking those moneys into consideration.

Prime Minister Justin Trudeau has vowed to oppose Smith’s plan to leave CPP.

We agree.

Breaking up one of Canada’s foundational safety nets is by no means in the national interest. The last thing the country needs is a rancourous debate that divides East from West.

That said, what Trudeau does owe the country is an independent inquiry into how the plan is being managed and funded.

In the meantime, he should tell Freeland the plan is intended for the well-being of pensioners, not for masking federal debt levels.