By Nicole Chung

Edited by Cassidy MacNeil and James Yeretsian

In a recent press conference, Alberta Premier Danielle Smith touted the possibility of establishing an Alberta-only pension plan upon the withdrawal from the Canadian Pension Plan (CPP). She spearheaded the proposed Alberta Pension Program (APP), which aims to reduce premiums that cut contributions from workers and employers whilst increasing benefits. If Alberta were to withdraw from the CPP, the province would be entitled to 53 per cent of the CPP’s assets, which amounts to a staggering transfer of $334 billion from federal coffers by January 2027, as outlined in a report released by LifeWorks. One of the four guarantees stipulated in the Alberta Pension Protection Act maintains that the government would only establish a provincial pension plan upon its approval obtained in a referendum. Therefore, they are committed to seeking input from individuals across the political spectrum, ensuring that the APP is a new direction all Albertans desire to pursue.

Sounds like an enticing prospect for all Albertans, doesn’t it? Alberta’s decision regarding the CPP nonetheless has implications that extend beyond its borders and impact every Canadian. The APP proposal is criticized for highlighting multiple optimistic forecasts and calculations that may not eventually come to fruition. While the government should prioritize stability, the potential exit from the CPP could instil significant economic and social uncertainties for both Albertans and the rest of the country.

The complex, time-consuming negotiation concerning the portability of the CPP to the APP would potentially jeopardize the province’s talent attraction efforts, further aggravating its current skilled trade shortages. Alberta is already grappling with a shortage of skilled trades labourers, as 21 per cent of its labour force is expected to retire by 2030. In an attempt to revitalize its economy, Alberta launched a campaign in 2022 to bring workers and professionals from other cities like Toronto, Vancouver, and Halifax to Alberta in an effort to remove all impediments obstructing labour mobility. However, the instability of the newly proposed APP regarding its actual benefits and contribution rates poses additional uncertainty to this goal. A stable workforce is indeed essential for firms and businesses to uphold a consistent level of productivity and ensure uninterrupted operations. It has become increasingly evident that APP would only instigate a layer of unpredictability to firms and their already-strained labour market.

The logic of a pension plan is straightforward: the larger the nationwide pool, the more capacity it has to spread financial hardships across the population. On the other hand, the reduction in pension portfolio size of the APP would forgo the opportunity for scale-related cost savings in internal and external management, resulting in mounting administration and investment costs, which is a deadweight loss that is too costly for society to overlook. Additionally, economist Trevor Tombe has disputed the 53 per cent CPP asset figure from LifeWorks that Alberta would be entitled to, stating that if both Ontario and Alberta were to embrace the LifeWorks formula for their CPP withdrawal, they would end up extracting more funds than the plan currently possesses, leading to an absurd situation. Therefore, Alberta may receive even less if it were to exit the CPP while simultaneously facing the loss in scale-related cost savings.

The growing fragmentation of Canadian pension pools would also undermine the strength of pensions for everyone, introducing undeniable harm to all Canadians. Not only would this cause increased financial burdens for businesses operating in Canada, but more crucially, it would leave seniors in a depth of despair with challenges during their golden years. Essentially, if Alberta were to claim the proposed 53 per cent shares as outlined in its report, it could destabilize the entire fund immensely and incentivize provinces like British Columbia and Ontario to also follow suit and hastily leave the CPP.

The CPP also assumes a prominent role as a formidable investor in numerous Canadian enterprises, enthralling both domestic and international capital as esteemed co-investors. This serves as a pivotal conduit, propelling investment into the very fabric of our local economy. However, the prevailing uncertainty looming over investors in the CPP, as well as the prospective APP, casts a dark shadow over forthcoming investments. Should Alberta move forward with its withdrawal proposal, APP would face a significantly smaller investment base and the potential danger of its asset management falling behind that of CPP Investment. This would pose considerable competitiveness challenges, potentially resulting in higher premiums or the province having to provide financial support to compensate for deficiencies.

Furthermore, the future of Alberta’s continued prosperity, buoyed by its youthful population, is far from certain. The foreseeable demographic shift towards an older population, along with the number of seniors doubling by 2051 and heavy reliance on natural resources, risks eroding the advantages of a transition from CPP to APP as envisioned. Quebec serves as a poignant reminder, as its residents now bear the weight of the highest contribution rates in the nation with its decision more than a decade ago not to join the CPP. In today’s fast-paced global economy, where capital moves effortlessly across borders, maintaining stability is crucial to instilling confidence in businesses and preserving our valuable competitive edge.

After all, the noble mission of our government is to safeguard Canadians against headwinds like climate change, pandemics, economic turmoil, and other extremely unprecedented events so that we can all enjoy a dignified retirement life. It appears that the government of Alberta is taking steps in the opposite direction to deny certainty and stability that has bestowed blessings upon generations. A withdrawal from CPP is a one-way ticket towards unguaranteed opportunities yet also volatility devoid of leeway for a return. The transition would conceivably give rise to a new stream of instability in its labour market, injure risk-pooling capacity, and, more broadly, dampen firms’ impetus and confidence to invest. Going forward, Premier Danielle Smith should carefully contemplate the repercussions and trade-offs of such a risky leapfrog to exit CPP at times of ongoing inflation and relentless labour crises. It is also imperative for the federal government to heed Alberta’s valid plea and embrace a productive renegotiation of federal policy, with the aim of keeping the current system intact, equitable, and beneficial for all Canadians.

Nicole Chung is a Master of Global Affairs candidate at the University of Toronto’s Munk School of Global Affairs and Public Policy. She graduated from the University of Hong Kong with a Bachelor’s in Global Health and Development. She is always passionate about actualizing the universal achievement of health. Some of her policy interests include health system strengthening, digital health innovations, and global health coordination.