Pension Folly

Alberta would be nuts to go it alone.

By Paula Simons

In 1965, Quebec, eager to be master in its own house, decided it wanted to have its own pension plan and not be part of the new Canada Pension Plan. Quebec’s population was younger than the Canadian average, and the province had a high birth rate. The province believed its fund, with lower contribution rates, would be a good deal for Quebec employers, workers and future retirees.

But as the power of the Catholic Church diminished, Quebec’s birth rate plummeted. Corporations, fearing separatist sentiment, decamped to Toronto. The population aged. Today Quebec has a pension contribution rate of 11.8 per cent of earnings, while the CPP rate is 10.9 per cent. And while the Quebec pension fund’s annualized investment return over the last five years was 8.1 per cent, the CPP’s return was an enviable 10.4 per cent.

A cautionary tale, as our province mulls the creation of a standalone Alberta Pension Plan.

The CPP is one of the most successful public pension plans in the world. But some Albertans argue we pay too much into it and don’t get our fair share back. Some want us to quit the CPP on principle, as a sign of Alberta autonomy. And some believe we should have our own pension plan so we can use it to support Alberta’s struggling economy, especially our energy sector.

Yes, Albertans pay more into the Canada Pension Plan than we get out: In 2017, payments from Alberta workers made up 16.5 per cent of all CPP contributions, while Alberta pensioners got back only 10.6 per cent of CPP benefits.

That’s not because of some nefarious anti-Alberta plot. It’s because our province has many young workers and a high workforce participation rate—and because Alberta seniors often head to cheaper, warmer parts of Canada to retire. Indeed, by 2019 the Alberta contributions to CPP had already dropped to 15.9 per cent of the national total. And that number may continue to trend down as more and more workers between the ages of 20 and 29 flee Alberta, looking for better economic opportunities and more congenial political climates.

A made-in-Alberta pension plan could mean lower contribution rates for employers and workers in the short term. Long-term? We may all have to pay far more to keep such a scheme afloat.

What we have now is a fully portable national pension plan, one ideally suited for Alberta’s highly mobile population. It doesn’t matter where you work or retire: your contributions and benefits remain the same. Creating our own pension plan, whatever promises of portability we make, will surely make it harder to convince people to move here when we need their labour. And it could potentially make it harder for older Albertans to retire to Comox or Kelowna or Cape Breton.

And sure, we could use Albertans’ retirement dollars to invest in struggling businesses here. But pension funds aren’t meant to help a government micromanage a local economy nor fund a pet project. They’re supposed to be resolutely apolitical, insulated from ideological interference. Managers are to seek out sound investments with solid returns. They limit risk by investing in a bunch of different places and sectors.

The more contributors who pay in, the less risk for everyone. An Alberta pension fund would, with its limited size and scope, be far more vulnerable and volatile. The CPP’s $475.7-billion investment fund, by contrast, is administered by an independent board. No prime minister can interfere with its decisions. And it’s harder to change that governance structure than to amend the Constitution: it requires the consent of two-thirds of provinces representing two-thirds of Canada’s population.

The CPP investment board is a major international actor, with offices in London, Luxembourg, Mumbai, Hong Kong, New York, San Francisco, São Paulo and Sydney, with less than 16 per cent of its funds invested in Canada. How on earth could Alberta duplicate that reach and expertise? And what might it cost us to try?

Finally, the CPP currently has $11.1-billion invested in Alberta. Most of that is money belonging to other Canadians. That’s not the sort of investment we ought to risk losing, to make some pouty political point about provincial powers.

Quitting the CPP in a huff, as a symbolic sop to the Wexit malcontents, might move us closer to some sort of sovereignty-association. It might score some short-term populist points. But the cost to our economy and jeopardy to our retirements could be huge. So too the costs to Confederation. And for what gain?

Your pension doesn’t belong to any government. It isn’t meant to support Alberta businesses nor any political agenda. It’s meant to support you when you can no longer support yourself. This isn’t some arcane debate about fiscal policy you can leave politicians and pundits to hash out. This is your money. Best make sure it will be there for you when you need it most. 

Paula Simons is an independent Senator, a former columnist for the Edmonton Journal and a long-time Albertan.

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