Q&A: The Alberta election and the prospects of a provincial pension plan

NIA Associate Fellow Doug Chandler explains a proposal to withdraw Alberta from the CPP

With Albertans heading to the polls for a provincial election on May 29, many of them will be thinking about pensions. Incumbent premier Danielle Smith of the United Conservative Party (UCP) has proposed withdrawing Alberta from the Canada Pension Plan (CPP) and replacing it with a standalone provincial equivalent. However, the idea does not have widespread public support — a recent Leger poll found only 21 per cent of Albertans, and 33 per cent of UCP supporters, were in favour of the plan. Smith has been largely quiet about it during the campaign, but that hasn’t stopped her main rival, Alberta NDP Leader Rachel Notley, from warning voters that a CPP exit could endanger their financial security in their later years.

To learn more about this issue, we spoke with NIA Associate Fellow Doug Chandler, who is based in Calgary.

Q: Where did the idea of withdrawing Alberta from the CPP come from?

A: The idea has been around for a long time, but this most recent conversation started as part of the mandate of the Fair Deal Panel commissioned by then-premier Jason Kenney in 2019. Proponents argued that Albertans overcontribute to the CPP, and that keeping pension dollars in the province would better support Alberta’s older adults. A government investigation into whether Alberta should leave the CPP has been outsourced to a third-party consultant. Their findings are complete but Danielle Smith is delaying public release of the report until after the election.

Q: What are her opponents saying?

The NDP has promised to legislate the protection of the CPP, by passing a law preventing any Alberta government from leaving the plan. Rachel Notley has been arguing that the CPP provides stability and that pulling out would put that stability at risk. The NDP also claims that creating a new provincial pension plan from scratch would cost Alberta hundreds of millions of dollars.

Q: Quebec also has its own provincial pension plan, the QPP. How would a potential Alberta pension plan compare?

Quebec decided to go it alone before CPP contributions started in 1966. There was never a question of how past benefits and assets would be shared. That’s the biggest difference from the challenge Alberta will face in negotiating an exit from CPP.
As a rule, social security like the CPP/QPP isn’t funded the way an employment-based pension plan would be. Contributions from the working population are used to pay pensions. Since 1997, the CPP has operated on a steady-state funding model, building up enough investments to get us through the baby boom and bust years without having to increase contributions.  Alberta will need to negotiate with the other provinces to determine who will pay for benefits that have already accrued and whether some of the assets managed by the Canada Pension Plan Investment Board (CPPIB) will be transferred to the Alberta plan.

Q: What about contribution rates?

The key determinants of contribution rates to an unfunded public pension plan are, a) the dependency ratio — the demographic mix of working-age contributors and retired pensioners; and b) the population and productivity growth that allows every generation to get more out than they paid in. Alberta has had the lowest average age in Canada for several decades and that’s why proponents of a standalone Alberta plan believe it could have had a more favourable mix of contributors and pensioners and lower contribution rates than the CPP. At the inception of the CPP, Quebec fertility rates were the highest in the country, if not the industrialized world, and they anticipated those fertility rates would translate into growth and lower contribution rates. But now, Quebec has fertility rates comparable to the rest of Canada and QPP contribution rates are slightly higher than CPP rates. So who knows what the future would hold for Alberta’s rates?

Q: Aside from rates, what are some other ways that withdrawing from the CPP could affect Albertans?

A significant proportion of Albertans will have had accruals in other provinces prior to moving to Alberta or will move to a retirement home outside Alberta. It's not clear whether — and on what terms — their pension will be split between the CPP, the QPP (if they worked and contributed in Quebec) and the new Alberta plan. There are likely to be some other subtle differences, such as using the Alberta inflation rate in place of the Canadian inflation rate or using Alberta’s definition of an Adult Interdependent Partner in place of the CPP definition of a spouse.

Q: If the UCP is re-elected, what can we expect will happen next on the pension front?

Smith’s finance minister, Travis Toews, says the consultant’s report on the merits of a standalone Alberta plan is favourable and is now being updated with current data. Once it is released, it would represent the opening bargaining position for an exit agreement with the other provinces, not the final terms. A UCP spokesperson has previously said the pension plan proposal would require a referendum if the party is re-elected. It isn’t clear if the referendum would occur before or after negotiations with Canada and other provinces. So it could be years before we have a clear idea of the funding deal and years after that before administration systems are ready and contributions begin to be directed to an Alberta plan instead of the CPP.