Bank on tense negotiations, Supreme Court decision if Alberta pursues its own pension plan

Alberta Premier Danielle Smith speaks Thursday at the release of a provincially commissioned report about creating an Alberta pension plan. (Jocelyn Boissonneault/CBC - image credit)
Alberta Premier Danielle Smith speaks Thursday at the release of a provincially commissioned report about creating an Alberta pension plan. (Jocelyn Boissonneault/CBC - image credit)

As Albertans weigh whether a provincial pension plan is a better alternative than staying with the almost 60-year-old Canada Pension Plan (CPP), CBC looked into how such a separation could work.

How does a province leave the CPP?

According to the Canada Pension Plan Act, a province wishing to withdraw from the plan must provide written notice and provide comparable benefits to those provided by the CPP.

But there is more to it than that.

The value of how much the province could get would have to be determined by Ottawa, according to Michel Leduc, senior managing director of the Canada Pension Plan Investment Board.

"Ottawa needs to work and to negotiate with all of the other participating provinces," he said. "That is going to be a fairly complex, thorny process."

The Alberta government said it is entitled to $334 billion of the total CPP fund, a little more than half of the fund's estimated total net assets, according to a newly commissioned report released Thursday.

The validity of that number has been questioned by experts.

Bonnie-Jeane MacDonald, an actuary and director of research for financial security at the National Institute of Aging at Toronto Metropolitan University, said negotiation will be critical if CPP assets are divvied up.

"We have this massive pot of money that is very attractive to politicians. But that money has been earmarked to actually pay out the pension promises that [were] made," she said.

"How to actually break up that money is going to be a very open debate."

MacDonald said determining a fair share for each province is where the rubber will hit the road.

"It's definitely not a slam dunk — far from that. I don't think the rest of the provinces are going to be willing to compromise the financial security of their seniors because of this change in decision by another province," she said.

"I mean, the point is that all Canadians actually pay the same amount into the CPP and they are all entitled to the same benefit formula."

As of 2023, the maximum monthly amount that can be received by a Canadian who begins taking their CPP at age 65 is $1,306.57. The actual amount is affected by the age they start taking their pension, how much and for how long they contributed to the CPP, and average earnings throughout their working life.

The Quebec Pension Plan, which came into effect at the same time as the CPP in 1966, offers an identical maximum monthly amount for its pensioners.

What could an Alberta pension mean for other Canadians?

Right now, it is hard to definitively say.

The CPP is funded by contributions from workers and employers, based on 5.95 per cent of their salary to a maximum of $3,754 each. A self-employed individual contributes based on 11.9 per cent of their income to a maximum of $7,508.

Alberta Premier Danielle Smith said Thursday that other Canadians in the CPP would see their contributions increase by $175 a year.

However, University of Calgary economics professor Trevor Tombe said that number depends largely on how much of CPP assets that Alberta could end up getting.

He estimates that if less than 22.5 per cent of CPP assets are given to a separate Alberta plan — in other words, less than half of the $334 billion that Alberta contends it should receive — then contributions from other CPP members might not need to increase, since Alberta's separating relieves some of the obligations of the CPP.

"It all comes down to that asset split, but unfortunately the language in the act is fairly vague," Tombe said.

"It's not obvious what it means and ultimately there's going to be a multi-year-long Supreme Court of Canada fight over what the act actually means."

What happens now?

A panel will consult with Albertans over the next few months about a possible provincial pension plan and a report will be submitted to the provincial government in May 2024, which will then determine whether there is enough support for a referendum to be held.

Even then, a referendum would take place before an agreement is reached with the federal government and other provinces and territories.

CBC News asked the Alberta Treasury to define the threshold at which the province would go ahead with a referendum.

A spokesperson did not answer that specific question, instead reiterating the panel and a possible referendum.

"We're turning to Albertans to hear their thoughts and questions about all aspects of an APP," said Savannah Johannsen, press secretary for the Office of Treasury Board.