Updated 25 September 2023

Updated 30 September 2023

 “This report shows a made-in-Alberta pension plan could put more money in the pockets of hard-working families and business owners and improve retirement security for seniors. We want to hear from you because it’s your pension, your choice. I’m so excited to hear what Albertans think about a provincial pension plan that could benefit Albertans now as well as our future generations.”

    Danielle Smith, Premier

In this post I critically examine the upcoming battle between the UCP state, business organizations, and Alberta sovereigntists versus a labour -NDP coalition led opposition of concerned seniors and worried CPP contributors.

First, I begin referencing the debate over the past two days and then investigate the central political, economic, and financial issues at play. The politics and abbreviated history of this idea are also canvassed.

Before the Lifeworks Report was released at 11 a.m. on Thursday, 21 September there were already commentaries and studies using information that had been provided to various parties.

In the Globe and Mail report on 20 September from Emma Graney and James Bradshaw details of the report were known.

The day before the release, the National Post published an opinion piece by Jack Mintz, former president of the C.D. Howe Institute and erstwhile director of the School of Public Policy at the University of Calgary. Mintz is a highly prolific author of academic articles and opinion pieces and believed to be associated closely with members of Danielle Smith’s inner circle.  Mintz believes the APP is a “no-brainer” and is possibly a negotiating tool to use in bargaining emission reduction targets with the federal government.

After eight years of confrontation over energy regulation and climate policies, Ottawa-Alberta relations are at rock bottom. If the Trudeau government wants to avoid the further fracturing of national arrangements like the Canada Pension Plan (CPP), it could try reducing tensions rather than stoking them. A good start would be bilateral agreement to negotiate a realistic path to reducing emissions without the unilateral federal regulation that is squandering Canada’s resource wealth despite our allies’ obvious need for secure energy.

On the day preceding the announcement (20 September) The Globe led with an exclusive entitled “Alberta eyes more than half of CPP’s assets in report on provincial plan.” The authors James Bradshaw the institutional investing reporter and Kelly Cryderman which identified the exact number of the controversial $334-billion asset claim by the report’s authors and promoted by Alberta positions.

The controversial number was also leaked to the CBC whose Joel Dryden penned a story entitled “Alberta will see a provincial pension plan report released today. Here’s what to expect.” Joel also reported that former Alberta provincial treasurer Jim Dinning would lead a pension panel.

The day of the announcement foreshadowed by the Globe and Mail the day before was reference to a report by Professor Trevor Tombe of the University of Calgary on the Alberta Pension Plan. Tombe is a prolific researcher, commentator and educator about public finance matters and is widely respected by his peers. The day after the announcement, Tombe (and Carrie Tait) was interviewed on his report by Matt Galloway at CBC’s The Current (Minute 47-60). Tombe’s report draws special attention to sensitivities affecting contribution rates promised by the Smith government. A lower transfer number means the Alberta Pension Plan’s (APP) ability to lower CPP premiums would be constrained.  The ability to lower premiums will also be constrained if investment returns are lower than expected.

Lisa Johnson’s piece “Alberta pension report’s $334B asset transfer estimate ‘problematic’ and ‘impossible’” late on 21 September (the day of the announcement) in the Edmonton Journal and published after the release of the report  details the  Canada Pension Plan Investment Board’s strong negative response to the highly politicized asset transfer number of $334-billion.

A similar piece the same day is found in The Globe and Mail (James Bradshaw, Carrie Tait, and Alanna Smith) entitled “CPP board disputes math behind Alberta’s bid to withdraw from national pension fund.”

Don Braid, the Calgary Herald’s veteran political reporter weighed in on the proposal the next day (“Braid: After coming months of promises and PR, pension plan might just pass referendum,” arguing that a referendum win was a possibility given the claims put forward by the government. Braid quotes former treasurer Jim Dinning saying

“This has the possibility of being a game-changer,” he said. It could bring “the infusion of a third of a trillion dollars into the investment sector.

Listen to my conversation with Shaye Ganam on CHED 630 Edmonton on 22 September 2023.

“I haven’t begun to think about the potential good that could come from that. But I would hope that that would be one of the themes that we will hear and discuss in the panels (and) deliberations.”

Other sources provided by the Alberta Federation of Labour in a petition email include:

Canadian Union of Public Employees

Town and Country Today

Pension Pulse

Jason Markusoff CBC News

West of Centre

The Report’s Delivery

Accompanying the press conference was a well developed communications entitled ”Your pension, your choice” including a survey of Albertans.

The report’s findings were cherry picked by the government which obviously backs this plan. “Key findings” include such hot buttons like “More Alberta, less Ottawa.” Purported benefits based on a naïve belief that Alberta could reach a deal that brought 53 per cent of the CPP’s total assets include:

• $334 billion in assets – A more stable pension plan
• Larger pension benefits for Alberta seniors
• $1,425 per year – Bigger paycheques
• $1,425 per year – Business savings
• 10 provinces, three territories – Portability across Canada

Key benefits listed in the communications plan offer other juicy benefits- “$5-billion- more money in the pockets of Albertans,” “larger pension benefits for Alberta seniors,”  and “$60-billion- more Alberta, less Ottawa.”

Included with the announcement was a minute and a half video giving background to the -the Fair Deal Panel report and the Lifeworks report.  A key element in convincing Albertans will be a reliance on “expert opinion” contained in these reports.

Media attention quickly focused on the gigantic transfer number and the quick response of the CPPIB to the interpretation of withdrawal section 113 that the Lifeworks’ reading of the section was unrealistic.

Jim Dinning and the “independent” panel

Accompanying the report’s release and marketing plan is the appointment of an “engagement panel” led by the former provincial treasurer Jim Dinning. Dinning is a shrewd source and a capable, confident panel chair combining charm with a firm belief in sound public policy.  Dinning brings not only credibility in the Calgary business community but also deep animus from labour, retired public servants suffering through the Klein cuts, and seniors’ groups.

The job of the Panel is straightforward. We ask Albertans to look at the facts, participate in the discussions and then tell us what they think about an Alberta Pension Plan and the different options we must consider. We expect our conversations will be complex and, at times, fiery, but people engaged in debate reminds all of us how important sound public policy is for our security and prosperity. Albertans will figure this out.”

   Jim Dinning, chair, APP engagement panel

This consultation approach is a vintage UCP strategy learned from previous conservative administrations, notably  the Klein years.  A “blue ribbon,” “expert,” and supposedly independent panel – who could argue against such learned experts except labour unions whose minds are made up and where the conclusions have been foreordained?  There have not been terms of reference released although the APP website states the report is due in May 2024. According to the website “Feedback and recommendations from the engagement panelists will be shared with Alberta’s government.”  This  statement implies that the public will not even be entitled to read report that is being paid for by Alberta taxpayers.  Other than the survey feedback, it is unclear how ordinary Albertans’ will be heard, presumably through carefully managed townhalls throughout the province destined to draw many in support of the plan.

Joining Dinning on the panel are Mary Ritchie an accountant and corporate director  from Edmonton who also served on the CPP Investment Board and Industrial Alliance Insurance.

 

 

 

Moin Yahya is a law professor at the University of Alberta who also has a Ph.D. in economics from the University of

Toronto. Professor  Yahya was a member of the Fair Deal Panel. According to his Fraser Institute biography he served as a member of the Alberta Utilities Commission and the Selection Advisory Board of the Immigration and Refugee Board of Canada. He has written a couple articles about pensions for the Fraser Institute including “Private pensions face regulatory burden the Canada Pension Plan does not,” published in the Financial Post of 6 June 2018. His main point  was that CPP’s claims to lower costs are because private pension funds are subject to regulations and rules the CPP is not. Another problem with the CPP is that Canadians don’t have any choice of investments, whereas private investment managers offer a panoply of choices. His second article “Understanding the Regulatory Framework Governing Private and Public Pensions,” criticizes the fact that private plan administrators as fiduciaries, like CPP investment Board fiduciaries are under more legal threats.

There are almost no laws allowing for private enforcement of governance laws against the administrators of the CPP, so the CPP enjoys substantial cost savings from not having to anticipate or defend against any liabilities that may arise from bad governance, something private pension plans must account for.

I conclude from this that Professor Yahya is not a fan of the CPP Investment Board which is not to say that some of his concerns aren’t valid.

Dinning’s panel will report by the end of May and the government will consider the report and the survey data to decide on whether there has been enough shifting of the public mood to proceed with a referendum. If there is little movement in public opinion, I assume the UCP government would abandon the early. That said this project is dear to the heart of many Alberta sovereigntists who are close to the Premier. There are a number of moving pieces including what the government chooses to do with the survey data.

The Survey

This survey begins with seeking key demographic data including postal code, gender, age and CPP pension status.  This will allow the government to perform analysis on what “goodies” presented in the survey are particularly appealing by demographic segments.  The survey then asks if the respondent “is familiar” with the Lifeworks Report. This will gauge both understanding and interest.   But “understanding” could be only what the government says is in the report or what their media feeds are saying.

Question 6 assumes that Albertans agree in a referendum to an APP “how should the savings be used? The choices are more seniors’ benefits, decreased contribution rates for workers and employers or both. The following section then looks at the retirement pension benefit, disability benefit, survivor benefit, childrens’ benefit and death benefit and asked the respondent how important each are. Next, you are asked if the $334-billion transfer is achieved, a big if, how should the $5-billion annual savings be used. Choices include maintain benefits and growing the fund or increase benefits and reduce premiums.

The next question “what else should the Panel consider about the use of these new assets if an Alberta Pension Plan was established?” is a leading question discussed below under politics..

The next questions relate to the plan administrator and investment manager.  The three choices given are: CPPIB; “APP” administrator or investment manager, or  the private sector. The government also wants to know where some of the potential pitfalls lay with Alberta administration and asset manager.  Six factors and potential pitfalls relating to an Alberta plan are: independence from government; stability; maximizing returns; diversified portfolio; and low administration costs.  The survey taker is asked to rate by level of importance to the survey taker. The answers should be obvious but the whole exercise relies on the flawed assumption of a $334-billion transfer.

The penultimate section asks for “any final thoughts to share with the Panel regarding an Alberta Pension Plan?”  In the final part intrusive questions for demographic analysis asks about income (with a “prefer not to say”), employment status, including student or retired or proximity to retirement, and, if retired, sources of income (CPP, private or public sector pension plans, RRSPs, etc.)

The government and presumably the panel then will be able to use this information to identify by income class, gender, income etc. (but not education) segments and their views about an APP. This will be a powerful tool to members of the government and offer a clear advantage that opponents of this scheme would not have.

There is also a technical problem with the survey.  There is no “I am not a robot”test before submission and surveys can be submitted multiple times from the same IP address.

Bottom Line

This will be one of the most contentious debates in the province’s history. The opening of another anti-Ottawa front will engage, and should, engage everyone.  There will of course be the unions, led by the Alberta Federation of Labour, which appeared ready for the fight. It is uncertain how the business community will view this idea. According to Lisa Johnson’s 21 September Edmonton Journal article, Calgary Chamber of Commerce head Deborah Yedlin had previously warned that a provincial plan could hurt labour mobility and create uncertainty for businesses.  The Canadian Federation of Independent Business (CFIB) also weighed in Thursday after the report’s release, warning that “while some small businesses may welcome the possibility of lower premiums, there are risks for Alberta in creating its own plan.”  Ms. Smith had a short stint as with CFIB Alberta in the 200a.. The business community is wide and varied.  Presumably for small businesses saving thousands of dollars are year will be attractive.  However, many of these owners are sophisticated enough not to buy the fantastical asset transfer number.

The few Alberta seniors I have talked to are alarmed at the government’s plan.  But perhaps $50 or $100 more per month would change their minds? Younger workers also could be lured into the short-term benefits of an extra $1425per year in their pockets. These goodies can be alluring at a time of affordability crises. That said, for young ambitious workers the question of portability are important ones and important in attracting outsiders into Alberta.

Politics

This whole undertaking is dripping with politics and sound economics and finance are completely irrelevant. Building off grievances such as the equalization formula,  transferring moneys from Ottawa-Toronto would give a good boost to the sovereignty movement.  This is also consistent with the “Alberta Inc. “strategy, previously announced by Jason Kenney, whereby Alberta would take advantage of the same devolution opportunities Quebec has achieved.  The government is rightly worried of being seen as interfering with the management of the fund.

Smith and her cabinet are smart enough to know APP will be a very tough sell. The logic of a national plan which pools the risk of tens of millions of Canadians is difficult to assail.  Pensions are a form of pooled insurance- tin theory the bigger the plan, the lower the risk and the lower the administration costs.Analogous to this is the national banking systems where national banks are better able to sustain downturns in part of their loan books due to geographic and industry diversification. Regional banks are just inherently less stable than national banks, all things being equal.

The task of Horner, Smith, and Dinning’s panel will be to make an APP more palatable to enough members of the population, that is 50 per cent or more, to initiate a referendum.  Currently about one in five Albertans support an Alberta Pension Plan.

This perhaps explains why that in the citizen survey the Alberta Investment Management Corporation (AIMCo) is not mentioned.  AIMCo has had a series of missteps over its 14 year experience and a chequered past.  

Leading into the provincial election, the transformation of Ms. Smith from a shoot from the hip politician to a reasonable steward of public office  included distancing from the pension issue. A recent search of mentions of CPP via  a word search for Canada Pension Plan of the election platform returned 

Further, there was the recent provincial election where the premier was asked about the prospect of Alberta pulling out of the CPP where Ms. Smith said “no one is touching anyone’s pension, pensions belong to pensioners, it belongs to Albertans, and no one is going to be touching their pensions, this is another example of misinformation that the NDP keeps running because they don’t want to talk about their record.”

Albertans will hopefully given their choice on this matter.  But is difficult not to ascribe cynicism to the whole gambit.

Some History

The Canada Pension Plan Act was passed in 1965 by the federal Parliament.  Quebec was adamant over having its own plan under Jean Lesage’s progressive liberal government. Having control of a large investment pool was viewed as a central achievement of the Quiet Revolution. It would mean that the Quebec state had access to vast pools of Quebecers’ savings for province building and supporting the emerging francophone business sector. A withdrawal formula was inserted (sections 3(2) and 113) which was based on a pension plan which was pay as you go with investments restricted to federal and provincial government securities and not the plethora of investment classes CPPIB’s investment portfolio has become.

In the early 2000s, think tank and academic research emerged concerning establishment of a separate public pension plan for Alberta. The Fraser Institute was host to an article by Bill Robson of the C.D. Howe Research Institute, a business funded think tank. He uses a “contributor-benefit intensity” ratio. Robson calculated a steady state contribution rate for a stand-alone Alberta plan. Writing in 2003, he concluded that an aggregate reduction in premiums of some $530 million or about $320 per contributor.” This presages some of the numbers the Lifeworks report comes up with 20 year later. The article does not estimate what the dollar value of the actual asset transfer would be.   Rather it uses the federal actuary’s report to formulate contribution rates based on Alberta’s different demographics. A key part of Robson’s rationale for lower premiums is the contributor being free to put money into private, financial institution tax-sheltered instruments, a long-time C.D. Howe policy recommendation.

Academic opinion was less sanguine.  In the Institute for Public Economics’ 2000 volume A Separate Pension Plan for Alberta- Analysis and Discussion edited by Paul Boothe, issues discussed related to the historic underfunding of the CPP.  The CPP reforms which Paul Martin and Jim Dinning and other provincial finance ministers ushered through were a legitimate response to fears that the financial foundations of the CPP were weak.  This had been obvious to observers for more than a decade. In a chapter by Herb Emery and Ken Mckenzie of the University of Calgary’s economics department it was recognized that a pay-as-you-go APP would have a contribution rate of 1.75 per cent lower than the CPP.

 

“However, the volatility of Alberta’s economy, increased administration costs, increased risk from pooling within a smaller population, and the effects of fiscally induced migration could easily erode this rate reduction, rendering it insignificant.  ….. We think that any solution to address the demographic challenges for pensions in Canada should be sought at the federal level, pensions are not a good area for provinces to take over  (pp. 63-64).”

 

Most recently, Tegan Hall of the Fraser Institute has written an opinion piece for the Calgary Sun touting the benefits of lower contributions, “anemic projected returns for workers born in 1993 or later compared to 10.7 per cent (nominally, on average per year) for the S&P 500, a common market index, since its introduction in 1957.”  The plan didn’t begin in 1957. She then repeats arguments about how hard done by Alberta is and marries the CPP’s unfairness (Albertans are younger and higher paid) with a “hard cap” on greenhouse gas emissions, Bill C-69 and Bill C-48.

In the 2019 UCP platform, Alberta Strong and Free there was virtually nothing about the CPP, public sector pensions, and AIMCo.  The UCP wanted to roll back the additional CPP benefits which provincial government had agreed to eliminate a $1624 payroll tax on every Alberta family. This was part of the Standing Up for Alberta section. Public sector pension management, AIMCo, nor policy support for a strong local financial sector were raised in the document.

Then unexpectedly and without consultation, UCP Finance Minister Toews launched significant changes to Alberta’s public sector pension legislation under Bill 22. In addition the Alberta Teachers Retirement Fund which hitherto had been managed by a stand-alone organization and board was to have its assets managed by AIMCo.  Given the lack of evidence in electoral platforms about this, it was a head scratcher, and still is, who got to Toews to sell the idea. The government was forced to back down when the Court of Queens’ Bench sided with the ATRF.  Fair Deal panel recommended more study by the government. The obvious beneficiary of these moves was AIMCo who was given management over ATRF funds and Workers’ Compensation Board funds.  Moreover, AIMCo’s monopoly of managing the funds of these public sector plans, a monopoly removed by the NDP, was reinstated.

Further bizarre twists have also undermined members’ confidence with AIMCo including investment management agreements being imposed, the losses on the 2020 VOLTs strategy, and arbitration proceedings by boards seeking $1.3-billion from AIMCo to restore losses from the ill-fated VOLTs strategy.

 

Related Posts

 

Can AIMCo be Fixed?

Can AIMCo be Fixed? (2)- Kenney redefines the pension bargain

AIMCo’s Board reports

What would Withdrawing from the Canada Pension Plan Mean to Albertans?