Front Burner - Can Alberta take half Canada’s pension fund?

Episode Date: October 30, 2023

A report commissioned by Alberta’s UCP government says if it left the Canada Pension Plan, the province is entitled to take over half the plan’s hundreds of billions worth of assets with it. Why have analysts ridiculed the estimate? Why is the UCP spending millions on a push to leave the CPP? What could an Alberta exit mean for pensions across the country? CBC writer and producer Jason Markusoff explains.

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The reality is, since the inception of the CPP, Albertans have been paying much more into it than they've gotten back during that same time. The CPP Alberta Premier Daniel Smith is talking about here is one of the key pieces of this country's social safety net, the Canada Pension Plan. Since the 60s, it's worked like this. Canadian workers and employers outside of Quebec pay into a big federal pot. And then once they retire, they get paid out of it.

But last month, Smith held a conference saying Alberta should pull out of the CPP, citing an estimate that the province could take more than half of the federal plan's assets with it and start its own pension plan. an estimate that the province could take more than half of the federal plan's assets with it, and start its own pension plan. I believe that an Alberta pension plan would be fairer and could make life more affordable for all Albertans. I believe it's the right decision for our province. With Alberta's new legislative session starting today, Daniel Smith's United Conservative Party says it'll soon introduce a bill with details of what a pension exit might look like. So where did the notion Alberta should leave the CPP come from? Is it even possible? And if so, what would it mean for Canada? To explain, I'm joined once again by CBC producer

and writer Jason Markosoff. All right, Jason, thanks for coming on FrontBurner. I really appreciate it. It is my nerdy pleasure to talk about this stuff. Great. Well, let's get into it then. So the idea of Alberta leaving the pension plan has been kicked around for decades, but I kind of want to trace it back to when Danielle Smith first seemed to pick it up. She was writing about it back when she was a columnist for the Calgary Herald back in the early 2000s. Why was this idea seeing a resurgence

even back then? It really became embedded in the Alberta public consciousness, at least the kind of conservative public consciousness, by something called the Firewall Letter. This was a letter by a series of conservative academics and activists, including the man who would become prime minister a few years later, Stephen Harper. And they liked the idea of creating firewalls around Alberta to protect it from government, namely liberal federal influence. And they had a bunch of ideas. Retrench from the Canada Health Act somehow, have Alberta collect its own taxes, start up its own police force, and start up its own pension force. Do a lot of things that Quebec already does. Basically assert Alberta's independence within Canada. It was a liberal government under Jean Chrétien at the time, and people were really disillusioned after three

straight majority governments. And this became the idea that Alberta would become its own power system within Canada. It would rest free of Ottawa. Right. And pensions was an enticing economic one. The idea being that Alberta is a younger population with higher incomes and more people in the workforce. Alberta, if it was on its own within Canada, would be keeping more money here. The idea would be that we could pay lower contributions,

maybe get higher benefits for pensioners. Danielle Smith, as a conservative columnist for the Calgary Herald at the time, was very interested in this idea, so much so that she'd bring it forward as a policy when she was leading the Wild Rose Party in Alberta a decade ago when they lost to the governing Tories and then has really championed it since becoming premier last

year. Right. And so that brings us to the press conference Smith held last month. So she released a report her UCP party had commissioned from a human resource company called LifeWorks after it held a series of panels. So what did that report say leaving CPP could look like for Alberta? a series of panels. So what did that report say leaving CPP could look like for Alberta? It painted a very rosy picture for Alberta. I think rosier than even some of the politicians may have expected. And it's all premised on the question of how much Alberta gets to take out. Because if a province can leave the pension plan, they get their due share of assets. And the way the actuaries at this company and their legal analysis concluded things, Alberta would be entitled to 53% of total CPP assets, even though the population is only about 17% of the provinces which participate in Canada Pension Plan. So we're talking a third of a trillion dollars. And with that massive nest egg, we could charge far lower contributions here in Alberta,

or possibly have lower benefits. According to a new report commissioned by the province, an Alberta pension plan would save people up to about $1,400 a year and still give them the same benefits. Danielle Smith has held up the possibility that this is so much money that Alberta would have to start its pension that we could offer bonuses of $5,000 or $10,000 to seniors. So she's taken this report with these very rosy projections and assumptions and put out this large advertising ad.

We're talking $7.5 million on advertising within Alberta to persuade people that this is a very exciting idea that they should seriously consider. Alberta's government is exploring an Alberta pension plan. The new plan could mean higher benefits for seniors and bigger paychecks for workers. It's your pension... So we've since heard from a number of economists' analysis on this. What have they said about whether Alberta is likely to get more than half of the CPP's assets?

original CPP Act that Alberta can take out all this money way out of proportion of the population Alberta has. A University of Calgary economist, Trevor Toome, who's published a peer-reviewed paper on this idea, has said that Alberta's 53% is patently unreasonable. He suggests it's less than half of that. And that's just a fairly unreasonable number and I think a problematic interpretation of the Act itself. And so that struck me. Because when you have a very large initial end I think a problematic interpretation of the Act itself. And so that struck me, because when you have a very large initial endowment in a pension plan, then you have a much, much lower contribution rate than you would otherwise have. With a more reasonable interpretation that I think is around 20% of CPP assets,

then the contribution rate is much higher than what they show in the report. Other experts have said it's maybe in the teens, but that taking more than half of the pension fund from the rest of the country would really affect them and how they can provide for Canadian pensions. Aside from this contentious 53%, I'm curious what else we've heard about positives and negatives to an Alberta-only pension plan, that figure aside. Well, that figure enables Alberta to do so much more. It's one of the big selling points. I mean, with that, assuming that that's their starting pool, Danielle Smith is saying that Albertans could pay $1,400 less than they do currently for pensions. She's also suggesting maybe they can get higher benefits or bonuses. The other idea that Alberta espouses is that we can create our own investment sector

based on this. If we start managing this fund ourselves, we can create all these new jobs in managing this pension program. So these are all the positives. And all these positives are laid out with great enthusiasm in Alberta's advertising and on their engagement website as they engage the public. What they're not talking about, however, is the risks. And pension literature normally talks a lot about risks. What happens if your demographic situation, if your population ages faster, if they're not making as much money, if the economy goes down, if your investments don't do as well. There are a lot of risks laid in managing a pension fund and those risks are not being shared in Alberta's literature, including, and now you're seeing the Premier Daniel Smith and

others talk about this, that, well, they can't really go to the bank on this 53% figure of asset share. It might be less. And if it is, of course, this whole project is less lucrative for Alberta. So are you saying that you're starting to see them walk it back a little bit, that figure? They are cautious about this. One of the reasons that Albertan politicians have always been cautious about this is that they know where the public is. The public has traditionally been about two to one opposed to this idea. People don't see the problem with CBP. In fact, the government, when they talk

about this, doesn't criticize CBP. They just say, we can run it better, we can run it cheaper, because we have the right demographic mix and power base and economic base to do that. This is an area which is very clearly defined that a province has the right to offer pensions. We have a framework for how we would be able to set up our own pension, and we've got a formula for how we would be able to do the transfer of assets. So this is just a very factual report so that we can give it to Albertans and they'll give us feedback on whether they want to proceed. If they give the indication to the panel that they want a referendum, that's what we'll do. So tell me, what polling have we seen? What kind of support is there for or against this

from Albertans? Can you give me a sense of what metrics we have on that? There's been some polling before this, and there's been a little bit of polling after this. And the numbers don't seem to have changed. A majority of Albertans are opposed to this idea. They see real risks. that is in favor of this is this small group largely embedded within the conservative party who really believes in this but they are a quarter one-third of the population and danielle smith is promising that if we ever went this route we would first hold a referendum if we if we get some positive feedback from albertans that they want a referendum we will we will know very soon i mean our first town hall had 12 000 people people on it, and we're continuing to get feedback coming in from all sources on the website through our survey. We'll have a pretty good idea of whether Albertans want it to go to a vote. So if this is what happened today, this whole CPP Alberta pension plan idea would not happen.

It appears that Danielle Smith wants to improve the public perception of this by putting forward the LifeWorks studies numbers and have this huge advertising campaign and even the pension engagement itself extolling the virtues of this idea. And that would allow for us to reduce premiums by $1,400 on employers and employees, as well as increase the amount of money that we're able to give to seniors. But it is up to them. And so that's... Okay. So if Alberta were to withdraw from the CPP, and I understand we're ways away from that, but what would that do to other Canadians' pensions? What's the potential harm there? Nobody denies that it would harm,

it would have material harm on other people's pensions. Danielle Smith is using the numbers from the LifeWorks report to say it would only cost Canadians left in the pension plan $175 more. But that doesn't include any buffer for risks that the Canada pension plan currently has. So it could be well more. But that's just based on her numbers and assumptions. has. So it could be well more, but that's just based on her numbers and assumptions. You know, we haven't seen any national level analysis to rival what Lifeworks, this company has put out. So it's not clear. What's certain in this is uncertainty.

Right. Will Canada Pension Plan without Alberta, without half its funds, be able to, you know, recoup its balance sheet as fast? Will it be as a powerful investor? Will it be able to manage investments as well as it has? Will it have to cut its benefits? Will it have to cut its contributions? There are a whole bunch of questions around this, and that is what is creating concern outside of Alberta.

I guess maybe this is kind of a naive question, but I guess the big question for me is how possible is it? Is it possible for Alberta to leave the plan? Where are we with that? It certainly can be done. When Canada created the CPP in the 60s, I created this opportunity for the provinces to opt out. They have to give three years notice and they have to figure out with the rest of the CPP partnering provinces and the federal government how to handle it so that everybody still gets paid their due pension based on the province they earned money in and based on the province they live in, how other winding down works, how to calculate, divide up the assets. So it's all there. It is possible. Whether it is practical to do that

is a whole different question. Happy holidays. I'm Frank Cappadocia, Dean of Continuous Professional Learning at Humber Polytechnic. I'd like you to set a goal to drive key learning for your people in 2025. I want you to connect with Humber CPL

to design a custom training solution that accelerates your team's performance and engagement. Humber works with you to hone industry-specific upskilling, enhance your leadership, and drive results. Flexible learning delivery formats are tailored to your unique needs.

Adapt, evolve, and excel. To learn more, go to humber.ca slash cpl. Hi, it's Ramit Sethi here. You may have seen my money show on Netflix. I've been talking about money for 20 years. I've talked to millions of people, and I have some startling numbers to share with you. Did you know that of the people I speak to, 50% of them do not know their own household income?

That's not a typo. 50%. That's because money is confusing. In my new book and podcast, Money for Couples, I help you and your partner create a financial vision together. To listen to this podcast, just search for Money for Cups. So what have the federal liberals been saying about the idea of Alberta leaving the CPB? A couple weeks ago, Prime Minister Justin Trudeau came out in a way we haven't seen him come out on, other provocations and challenges that Alberta has done. He said that this would materially harm other Canadians, pension earners, and even Albertans. Sending a letter to Premier Daniel Smith saying, in part,

Alberta's withdrawal would weaken the pensions of millions of seniors and hardworking people in Alberta and right across the country. The harm it will cause is undeniable. And he's going to have his cabinet ministers do what they can to persuade people against this plan and defend the sanctity of the Canada pension plan. Nobody should be playing politics with pensions. It's the sentiment shared by many MPs in Ottawa.

It's a rock. It's some stability. People are reaching out and holding on to whatever rock they can these days. It's going to be important for me as finance minister and finance officials to study that position carefully. I'm going to also want to speak with the finance ministers of other provinces. And we've also seen provinces get involved with this because, you know, the B.C. Premier and the Newfoundland and labrador premier have both said they defend their own province on this we are a big vast country that is connected intimately by the social safety network and the social network that exists one of the the cornerstones of which is which is the cpp and i think it's important that we protect it but it will be punitive to more than just Newfoundland and Labrador. Last week, we saw the Ontario finance minister, who's a conservative under Doug Ford's government,

say this is a threat to CPP and he wants to have, and this is soundly just going to happen because all sides agree on this, including the federal finance minister, have this big meeting of all finance ministers to talk about the implications of this and to figure out what's real, what numbers are real, what the risks are, what would happen if a wealthy province would pull out of the pension plan. Our government firmly supports the Canada pension plan and we believe Alberta's proposal could cause serious harm over the long term to working people and retirees in Ontario and across Canada. This is why it is imperative that Minister Freeland convenes an immediate finance minister's meeting to discuss a path forward for this important issue.

They see this as a risk to this major security cushion for Canadians' retirement. What kind of response have the federal conservatives given to this? A lot of people were wondering what Pierre Pauliev and the conservatives would say about this. A lot of analysts thought this put them in a vice because the federal liberals and the provinces will be opposed to this

but Albertans, especially in the conservative base, would be into this idea. It's been a big thing, like I said, for two decades. So Pierre Pauliev came out and said he would encourage Albertans to stay in the Canada Pension Plan. He said if Justin Trudeau was not Prime Minister, this wouldn't be an issue because Albertans wouldn't be frustrated with their lot in Confederation. And this creates an interesting tension between what Pauliev is saying and what Smith is saying, not only on the pro-con side of this

issue, but Daniel Smith is arguing this is not a leverage point, this is not a negotiation, this is not just one of many beefs with the pro-government. This is a plan that she wants to pursue on its own, whereas Pierre Polyev is suggesting this is just part of the frustration with Ottawa. Let's assume that Danielle Smith is, you know, earnest about seeing this through. What does the rest of the roadmap look like for potentially taking Alberta out of the CPP? How would that come into fruition if she's really serious about it? Currently, she has tapped a former finance minister, Jim Dinning, to host a bunch of engagements. It's mostly teletown halls,

this, like I said, very promotional seeming website for the APP idea. A decision on a public policy issue of this magnitude should only be made after plenty of rinsing and soaking and discussion and debate among Albertans. Most big ideas deserve at least that. Based on what they report, if they report that there is strong favor in this, that Albertans want this, then Daniel Smith is promising a referendum. The referendum wouldn't happen until 2025. So we're talking two years from now, likely. And should Albertans change their minds from current and vote in 2025 to get out of the Canada pension plan, the earliest they could do it based on the law is 2029.

What would happen there is probably a whole bunch of lawsuits and very tense negotiations between Alberta, the other provinces, and Ottawa in negotiating what Alberta on its own in the pension plan and Canada pension plan without it would look like. Okay. Just in terms of first steps, Alberta's new legislative session begins today and the House leader says that one of its early bills will be what it's calling the Alberta Pension Protection Act. So, what will that do exactly? benefits and contributions would be at very least the same as in the CBP, if not better. Okay. And that Alberta wouldn't take the pension assets and spend them on whatever it wanted. So it's this measure of reassuring Albertans on some of the several points that they're currently anxious about as these engagements go along.

What Alberta is not foreclosing on yet, though, is the idea that it would use the pension investments to boost Alberta's economy and perhaps invest in oil and gas to help shore up the oil and gas sector. That would help the economy, but it might not be a great investment for Alberta's nest egg. Okay, so Jason, there's a lot going on between Alberta and Ottawa right now. And I just kind of want to recap a bit of context here. So after the Liberals unveiled their plan to make the national electricity grid net zero by 2035 in August, Daniel Smith's UCP launched this pretty bleak ad campaign against it in multiple provinces.

Lights, mobile phone, stove, your heat in minus 30. Visit tellthefeds.ca to learn why Canada's power grid will be unreliable and tell the feds. Trucks driving around Ottawa saying no one wants to freeze in the dark. Smith also told a climate change conference last week that the plan was fantasy thinking. And I am not going to engage in fantasy thinking and say something is possible when I know that my principal job is to have a reliable energy grid. And then, also this month, Alberta's challenge to the Liberal Environmental Assessment Act

ended with a partial victory at the Supreme Court. It won't make it easier to build pipelines per se, but it's going to limit Ottawa's power over some of those projects. So my question is, given all that, I wonder how we should understand Danielle Smith's CPP campaign. Whether Alberta actually leaves the plan or not, what message do you think she's trying to send? Whether she's sincere in believing that this is a plan that's worth it on its own merits certainly it is within this universe of provocations that alberta has these challenges alberta has to the federal government uh it and she's not the first premier to do this uh even the ndp premier uh you know would make hay uh rachel notley before her on standing up tall to Ottawa. It's kind of part

of the classic Alberta playbook. But the difference between some of the other provocations and challenges Alberta has had, like fighting the carbon tax, clean energy regulations, or legislation, or equalization even, is that they've been able to get some alliances from what other provinces. They've been arguing that, no, Alberta, you're weakening Alberta with some of your rules. We need a strong Alberta to make a strong Canada. This is a different argument. This is saying Alberta is affluent. Alberta is young.

Alberta is different. We can take our own money and do it better ourselves. And that, in effect, materially weakens the pensions, the pension program of every other Canadian. So they are not finding allies among other provinces and leaders along this. They are finding people, finding threatened by this plan. So Alberta is on its own. And it's one of these weird situations where Justin Trudeau, Pierre Pauliev, the Ontario government, the BC government, and the Alberta public are all on the same page. And Danielle Smith is arguing against them.

Does it look like she's going to hold fast right now from your perspective? She's trying to be cautious and saying that we're not pressing forward with this. We want to hear what Albertans think. Go to referendum if necessary. So it could well be that she lays down her sword on this one and doesn't go forth with this idea, given how unpopular it is. And it doesn't seem like it's turning the corner just yet.

But if she does that, all these people who really believe in this, the Alberta First Movement, the hardcore conservative base, will be very upset because she's been pushing this forth. And if she drops it, she'll have a lot of questions

internally. All right, Jason, thanks so much. Appreciate it. Hey, no problem, Damon. All right, that's it for today. I'm Damon Fairless. Thanks so much for listening to FrontBurner. I'll talk to you tomorrow.