Pulling out of Canada Pension Plan could come with large liability: NDP
Economist, government say $133 billion shortfall outlined in memo misleading
EDMONTON NDP Leader Rachel Notley is accusing the government of keeping details related to creating a provincial pension plan out of last week’s Fair Deal Panel report, including a claim that Alberta would assume an unfunded liability of $133 billion.
But a University of Calgary economist says that number should not be taken seriously because it is based on the assumption that no one contributes to the hypothetical Alberta Pension Plan (APP) ever again and the math is stretched out over 150 years.
The Fair Deal Panel, a group charged with coming up with ways to give Alberta a stronger position in Confederation, recommended pulling out of the Canada Pension Plan and creating an APP because the province has a young population that pays more into the national fund than it spends. Premier Jason Kenney has promised to study the concept and put it to a referendum before making changes.
A government memo dated from before the Fair Deal Panel was formed, obtained by the NDP through a freedom of information request, discusses liability, more volatility in an Alberta fund and the possibility that at least some of the other provinces would have to agree before Alberta would even be allowed to leave the CPP.
The government’s memo says the CPP Act requires a province that wants to leave the national pension plan take a portion of assets and liabilities.
“Based on population at that time, Alberta’s share is estimated to be $32.5 billion in assets and $165.6 billion in liability (resulting in $133.1 billion in unfunded liability),” the document says.
Notley noted Monday that none of the information in the memo made it into the Fair Deal Panel’s final report.
“Either Jason Kenney sent them on a fool’s errand or he said, ‘Here’s the information but don’t tell anybody.’ Either way, what we have is a report that does not reference it at all,” she said.
Kenney, meanwhile, accused the NDP of “gross financial illiteracy,” denying the government was hiding anything.
Both Kenney and Finance Minister Travis Toews told the legislature Monday that the panel had access to the memo.
“The bold, stark truth is that Albertans effectively have this liability under the Canada Pension Plan or under a notional Alberta pension plan, Mr. Speaker. The liability doesn’t change,” Toews said.
“What does change … is the fact that in the event Albertans choose to accept and adopt an Alberta Pension Plan there would be a real possibility and opportunity for cost savings for Albertans.”
University of Calgary economist Trevor Tombe said that, in reality, the CPP does not have any unfunded liabilities because the rates people pay into the fund are set to be enough to cover money being taken out by retirees.
The same would be true for an Alberta plan.
“There is no CPP unfunded liability and there wouldn’t be an Alberta Pension Plan unfunded liability either if the tax rate for that pension plan was set appropriately, and it would be,” he said.
The writers of the government’s memo arrived at the province having a $133 billion in unfunded liability only when they tested a scenario assuming that no one contributes to Alberta’s hypothetical pension plan ever again but the province continued to pay out to retirees, Tombe said. On top of that, the memo’s calculation is based on a 150-year projection, which is not normally how things are done, he said.
“A 150-year time horizon to do these projections is not credible. There’s a reason why the CPP only does 75 and why the parliamentary budget office for the entire federal government only does 80. There’s nothing about $133 billion that should be taken seriously,” he said.
The briefing note, dated Sept. 18, 2019, acknowledges that an Alberta plan would likely be cheaper because of the province’s young population but warns that the small size of the pool relative to the CPP means less ability to spread out the risk and therefore more volatility.
It also says more legal analysis needs to be done on whether Alberta could leave the CPP without the thumb’s up from other provinces.
According to the CPP Act, any change to benefits, contribution rates and the management/operation of the CPP cannot be made unless at least two-thirds of the provinces, having at least two-thirds of the population, have agreed.