Alberta Pension Plan: Why Alberta wants to leave the CPP—and what would replace it
In late September, Alberta Premier Danielle Smith opened a public online consultation on a proposal to withdraw the province from the Canada Pension Plan (CPP). Her announcement was tied to the release of a third-party report that claims, among other things, that Alberta is entitled to 53%, or $334 billion, of the plan’s total assets. Smith contends that Albertans could receive more and pay less with a provincial investment fund.
Can Alberta leave the CPP?
Yes. According to government documents obtained by Postmedia, the federal government would have difficulty blocking Alberta’s withdrawal from the CPP. Although the federal government is responsible for laws covering old age pensions and other benefits, it cannot overrule a provincial law on the same matter, the documents state.
The Alberta government believes pulling out of the CPP could lead to $5 billion in savings for the province, which it says could be used to boost Alberta seniors’ pension benefits. Its report says Albertans would also save on premiums.
The CPP board has questioned the figures presented in the report and the formulas used to arrive at them. Critics also question the overall feasibility of the proposal, arguing that while Alberta may leave the CPP if it wishes, the province is not entitled to $334 billion in funds, as reported. Many say Alberta’s share is much lower. Alberta’s opposition government has opened its own online consultation to understand where Albertans stand on the issue.
The Quebec Pension Plan: A precedent for Alberta?
The report suggests that the APP would operate similarly to the Québec Pension Plan (QPP) in Quebec—for example, residents would be able to move throughout Canada without losing their benefits—but there is a considerable difference between the two projects.
Although the QPP is a provincially run pension fund, it was never a part of the CPP; it opted out when the federal fund was established in 1966. If Alberta leaves, it would be the first province to remove itself from the CPP.
What would replace the CPP in Alberta?
The proposal is to have an Alberta Pension Plan (APP), an investment fund that is separate from the CPP and managed provincially rather than federally.
Details about how this would work are scant, but the government documents say the province would have to meet three criteria to go ahead: It would have to give three years’ notice before the change, enact legislation within one year after that, and create a pension plan that’s comparable to the CPP. The documents note it would be difficult to determine if the APP is “comparable” to the CPP, as such details are not clearly laid out in Canadian legislation.
Smith’s plan is built on receiving 53% of the total CPP investment, but since there is no indication that that money will be forthcoming, it’s unclear how the transition would be funded. There are significant costs associated with setting up and administering an investment fund, not to mention implementing new processes for contributions and withdrawals and overhauling Alberta’s tax infrastructure.
What comes next?
Albertans are now in the consultation process for this proposal and they’re encouraged to share their feedback at a public engagement session or online. Afterwards, an engagement panel will present its report to the Alberta government in May of 2024. Smith has promised a referendum on the question is possible in 2025 with an eye to a possible 2027 roll-out.
Read more about the CPP:
- Should you collect CPP and OAS while working in your 60s?
- Delaying CPP and OAS to age 70: Is it worth the wait?
- CPP vs RRSP: Can you transfer your CPP to an RRSP?
The post Alberta Pension Plan: Why Alberta wants to leave the CPP—and what would replace it appeared first on MoneySense.
No comments