Provin­cial pen­sion plan not with­out its risks

Calgary Herald - - NEWS - CHRIS VARCOE Chris Varcoe is a Cal­gary Her­ald colum­nist. cvar­coe@post­media.com

In the midst of a col­lapse in oil prices and a global re­ces­sion, who wants a new Al­berta pen­sion plan?

The Fair Deal panel cer­tainly does, rec­om­mend­ing Al­berta with­draw from the Canada Pen­sion Plan (CPP) and set up a provin­cial ini­tia­tive to re­place it.

Premier Ja­son Ken­ney says there are “per­sua­sive ar­gu­ments” for the idea, although he wants more anal­y­sis com­pleted and has in­structed fi­nance depart­ment of­fi­cials to ex­am­ine the is­sue fur­ther.

Some Al­ber­tans down­right op­pose the no­tion.

Ul­ti­mately, the pub­lic could de­cide the thorny ques­tion in a provincewi­de ref­er­en­dum — an­other rec­om­men­da­tion from the panel — if the UCP gov­ern­ment de­cides to move the idea for­ward next year.

It’s no sim­ple mat­ter.

And the fi­nan­cial trou­ble cre­ated by the COVID-19 pan­demic and sharp drop in oil prices il­lus­trates the volatil­ity and risk that could bat­ter a smaller provin­cial pen­sion plan nav­i­gat­ing a tur­bu­lent eco­nomic storm.

The prov­ince’s Fair Deal panel re­port was re­leased Wed­nes­day with a key rec­om­men­da­tion ad­vis­ing the prov­ince to “de­velop a com­pre­hen­sive plan” to cre­ate an Al­berta pen­sion plan (APP) and with­draw from the CPP.

“The panel rec­om­mends vig­or­ously ex­plor­ing this op­tion and con­duct­ing the due dili­gence needed to as­sure Al­ber­tans that ben­e­fits and risks are un­der­stood and can be pos­i­tively man­aged,” the re­port states.

But what’s the ra­tio­nale for Al­ber­tans leav­ing the se­cu­rity of a well-funded na­tional pro­gram for an untested provin­cial one?

Well, with higher in­come lev­els in the prov­ince than the rest of Canada, a younger pop­u­la­tion and his­tor­i­cally higher em­ploy­ment rates, “Al­ber­tans con­trib­ute dis­pro­por­tion­ately to the CPP,” the re­port said.

A younger pop­u­la­tion means there are rel­a­tively more peo­ple con­tribut­ing to the plan, and fewer peo­ple draw­ing pen­sions, than in other parts of the coun­try.

In 2017, Al­ber­tans col­lected 10.6 per cent of CPP ex­pen­di­tures but made up 16.5 per cent of to­tal con­tri­bu­tions — leading to a net con­tri­bu­tion of $2.9 bil­lion.

“As con­tri­bu­tions to the CPP are planned to in­crease over the next five years, Al­ber­tans’ sub­si­diza­tion of the CPP will likely con­tinue to grow.”

The re­port said pulling out of the na­tional pro­gram could see the provin­cial con­tri­bu­tion rate fall to as low as 5.85 per cent from the CPP base plan rate of

9.9 per cent, while keeping ben­e­fits at a com­pa­ra­ble level.

“This could be used to re­duce Al­ber­tans’ pre­mi­ums while main­tain­ing or in­creas­ing ben­e­fits paid to pen­sion­ers over time,” the re­port states.

This con­clu­sion is sim­i­lar to an in­ter­nal study pre­pared last year by the Al­berta In­vest­ment Man­age­ment Corp. (AIMCO), which said if a provin­cial plan were adopted, the sus­tain­able pen­sion con­tri­bu­tion rate would drop to 7.21 per cent or lower.

How­ever, other is­sues, in­clud­ing net pop­u­la­tion mi­gra­tion, labour-mar­ket par­tic­i­pa­tion and wages, would af­fect those as­sump­tions.

“Con­sider a sce­nario where the Al­berta en­ergy sec­tor col­lapses and re­sults in a sig­nif­i­cant net mi­gra­tion of work­ing-age peo­ple out of Al­berta,” cau­tioned the AIMCO re­port.

“Un­der this sce­nario, Al­berta may have been bet­ter off re­main­ing in the CPP.”

You don’t have to look far to see the prob­lems al­ready caused by the pan­demic and fee­ble oil prices, with layoffs con­firmed Wed­nes­day at Ov­in­tiv (for­merly En­cana), while pipe­line gi­ant En­bridge said about 800 em­ploy­ees have taken vol­un­tary re­tire­ment, buy­outs or ac­cepted leaves.

The panel said some Al­ber­tans thought the prov­ince’s con­tri­bu­tions were un­fair and that with­draw­ing from the CPP “would de­liver a clear mes­sage to Ottawa.” It also heard con­cerns from many se­niors who “un­equiv­o­cally told the panel: make sure pen­sion­ers are pro­tected!”

It’s also un­clear how much back­ing there is for the con­cept.

A poll con­ducted for the panel in March found 42 per cent of Al­ber­tans agreed “some­what” or “a lot” that es­tab­lish­ing a pen­sion plan would help im­prove the prov­ince’s place in the fed­er­a­tion, while 54 per cent said “not very much” or “not at all.”

“That is not wide sup­port. That is not go­ing to win a ref­er­en­dum,” said Lisa Young, a po­lit­i­cal sci­en­tist at the Univer­sity of Cal­gary’s School of Pub­lic Pol­icy.

“That re­ally speaks to a bit of a sense of anx­i­ety when you are ask­ing peo­ple to bet their re­tire­ment on this.”

Young noted the de­mo­graphic ad­van­tage Al­berta now en­joys could change, point­ing out that New­found­land and Labrador had the coun­try’s youngest pop­u­la­tion in the 1970s and ’80s be­fore the cod fish­ery col­lapsed.

If gov­ern­ment anal­y­sis shows there is a net ben­e­fit to re­plac­ing CPP, Ken­ney said a ref­er­en­dum on the is­sue could hap­pen dur­ing the mu­nic­i­pal elec­tions in Oc­to­ber 2021.

The premier also pointed out Que­bec has man­aged its own provin­cial plan for decades.

“I don’t un­der­stand why Al­ber­tans think we are some­how less ca­pa­ble of man­ag­ing our own money than Que­be­cers are. I frankly find that no­tion in­sult­ing,” he told re­porters.

While Que­bec has its own provin­cial pen­sion pro­gram, no prov­ince has opted out of CPP since it was es­tab­lished and is­sues such as porta­bil­ity would need to be ironed out.

Hav­ing the Canada Pen­sion Plan In­vest­ment Board or AIMCO man­age Al­berta’s pen­sion in­vest­ments would be an­other key mat­ter to con­sider.

But in such un­cer­tain times, are Al­ber­tans pre­pared to as­sume more risk?

A re­port this year by pen­sion ex­pert Keith Am­bacht­sheer said the prov­ince would be “tak­ing on ma­te­rial un­der­writ­ing risks” by cre­at­ing its own plan, as the coun­try­wide CPP con­trib­u­tor base of­fers di­ver­si­fi­ca­tion ben­e­fits to Al­ber­tans.

Am­bacht­sheer, an ad­junct fi­nance pro­fes­sor at the Univer­sity of Toronto and di­rec­tor emer­i­tus of its In­ter­na­tional Cen­tre for Pen­sion Man­age­ment, said Wed­nes­day he was sur­prised by the panel’s APP rec­om­men­da­tion, but wel­comed news the fi­nance depart­ment will con­duct fur­ther anal­y­sis.

“You can’t just look at the po­ten­tial re­wards,” he said.

“Hope­fully Al­ber­tans, be­fore this gets to a ref­er­en­dum, will get the straight goods, not just about the po­ten­tial re­wards but about the risks.”

GETTY IM­AGES/IS­TOCK­PHOTO

Are Al­ber­tans will­ing to gam­ble their pen­sions in these un­cer­tain eco­nomic times, colum­nist Chris Varcoe asks.

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