The Alberta government’s plan to potentially create its own retirement plan and withdraw from the Canada Pension Plan has raised questions, concerns and confusion in any part of Canada that includes members of the existing CPP.
On Breaking:, readers, listeners and viewers have submitted questions or commented on what’s proposed and what’s to come. This is something I wanted to know about.
What exactly is the CPP?
The Canada Pension Plan began in the late 1960s as a nationwide pension plan that took contributions from workers’ paychecks to provide pensions upon retirement.
Both employers and employees are required by law to contribute to the CPP, except in Quebec, where a separate QPP (the Quebec Pension Plan) was created at the same time as the CPP.
Combined, paid employees and employers 11.4 percent of a worker’s salary to the CPP in 2022, based on an annual income between $3,500 and $64,900. Retirees can receive a pension from the age of 60. The contributions have increased from just over 10 percent in 2019 to approach 12 percent by 2023.
“Everyone contributes with the understanding that when the time comes to retire, they can expect their own steady stream of income where the plan directly manages the risks,” explained Sebastien Betermier, associate professor of finance at McGill University and chief executive officer. director of the International Center for Pension Management.
For CPP members, those risks have been managed by the Canada Pension Plan Investment Board (CPPIB), an entity created in 1997 that is independent of the Government of Canada.
The CPPIB manages 575 billion dollars. According to its most recent annual report, it has had an average net return of nearly 10 percent annually over the past decade, which is generally known as annualized returns in the industry. It is also ranked as one of the best managed pension funds in the world.
CPP funds are “kept separate from government funds” and neither the provincial nor federal governments can access the money from the Canada Pension Plan.
Betermier said his personal opinion is that the CPPIB would not want to have to sell investments to be able to pay Alberta for a notional item.
“The best way to create efficiency as an asset manager is to invest for the long term… What you don’t want is a situation where from one year to the next you are losing a large portion of your capital because that is “It’s going to require you sell some of the assets,” he said.
How come Quebec can have its own pension plan and no one else can?
The federal law that created the Canada Pension Plan allows provinces to leave the country.
So, first of all, other provinces can have their own pension plans. In fact, any province that is not part of the CPP must offer a comparable pension plan.
Alberta is allowed to leave if she wishes, with three years’ written notice.
And why does Quebec have its own pension plan?
“Quebec is not part [CPP] because Quebec opted out from the beginning,” said Edmonton-based lawyer Dennis Buchanan, who has publicly opposed the proposal to separate from the Canada Pension Plan.
Buchanan said it’s fair to describe Alberta’s exit from the Canada Pension Plan as a kind of metaphorical divorce. Quebec did not have to divorce itself from the CPP because it never married, so to speak.
“Alberta ends up having to go through a process to get out [the CPP] because we are part of it. “Quebec was never part of this,” he stated.
Buchanan hopes that if the Alberta government attempts to proceed with exiting the CPP under current demands that could amount to taking away more than half the value of the plan, it will end up in court and litigated.
“I don’t see the federal government or the other provinces agreeing to that,” he said.
How would withdrawing Alberta’s funds affect other people’s pensions?
The multimillion-dollar question, which has no clear answer, is how much “his funds” would be.
The Government of Alberta, citing a report it commissioned Lifeworks owned by TELUSclaims it would be entitled to more than half of the CPP’s assets, or $334 billion by January 1, 2027.
However, their calculations have been questioned by independent experts such as University of Calgary economist Trevor Tombe, who said that if both Ontario and Alberta used the LifeWorks formula to leave the CPP, they would withdraw more money than is currently in the plan. , a “potentially absurd result.”
In an analysis Tombe wrote last month, he said there is not enough publicly available data to definitively assess what an Alberta exit would mean, along with uncertainty about how the law would be interpreted.
“There is a fundamental ambiguity in the language of the law,” the economist told Reuters.
However, Tombe also said in interviews with Breaking: and Reuters that CPP contributions could increase for Canadians outside of Alberta if they abandon the plan.
Even if Alberta were to receive less than it suggests (say, more than 22.5 per cent of the plan’s existing assets), contributions to the CPP from all parts of the country may have to increase.
And if Alberta were to accept the 53 per cent proposed in its report, that could completely destabilize the fund and would “dramatically” increase the incentives for British Columbia and Ontario to also leave the CPP, and to do so quickly.
Do benefits continue if Alberta Pension Plan members leave Alberta?
This would be subject to negotiation between Alberta and other jurisdictions after abandoning the plan. While the CPP has agreements with other plans, including Quebec, Alberta would be negotiating from scratch after abandoning the plan.
“It’s not very clear how portability would be affected if Alberta were to withdraw from the CPP,” said Bill VanGorder, advocacy director for the Canadian Association of Retired Persons.
VanGorder, who lives in Halifax, used the example of someone who worked in Alberta but lived (or planned to live) in Nova Scotia during retirement, and said it’s unknown at this time whether employment hours or contributions in a region would count. for a full salary. pension in others.
Why is the CPP so low? We can’t live off it
Experts say the CPP was never intended to be a full retirement income on its own, and that Canadians should not have this expectation, regardless of a possible separation of Alberta from the plan.
“It’s supposed to represent about 25 percent of your income [from] while working,” said Bonnie-Jeanne MacDonald, director of financial security research at the National Institute on Aging at Metropolitan University of Toronto.
According to MacDonald, the remainder of the Canadian retirement should be funded by employer pension plans, private savings such as RRSP or TFSA, and the government’s old-age security plan.
MacDonald admits that because a large majority of Canadians do not have access to an employer pension plan or sufficient private savings, a stable CPP is critically important for all members.
Will Alberta pensions increase if the province leaves the CPP?
One of the potential benefits of an Alberta Pension Plan, as claimed by the United Conservative Party government, is the possibility of increasing benefits paid to Alberta seniors.
Experts say this, like everything else at the moment, is unclear, but may be unlikely in the long term, according to Bonnie-Jeanne MacDonald.
He noted that the amount of benefits paid will be directly related to the amount of money Alberta withdraws from the CPP.
“The idea that when Alberta secedes, they will automatically receive higher pensions is a big assumption because no one agrees on what that number should be. And that would really be the first step to start discussing how much the pensions would be.” change,” she stated.
Alberta has said it could hold a provincial referendum on its withdrawal from the CPP as early as 2025, but Premier Danielle Smith has said she would first need a figure on how much Alberta could withdraw from the plan.
According to the first major survey Carried out since Smith began campaigning to remove Alberta from the CPP, the proposal is widely opposed among Albertans.