Background
Last summer, I wrote the following letter to the then Finance Minister and Deputy Prime Minister, Chrystia Freeland.
Edmonton, Alberta T6C 4R1
12 August 2024
The Honorable Chrystia Freeland, P.C., M.P.
Deputy Prime Minister and Minister of Finance
Member for Parliament, Toronto University-Rosedale
Ottawa, Ontario
Canada K1A 0A6
Dear Ms. Freeland
Re. Bill C-387
In the last sitting of the House of Commons, M.P. Heather McPherson, M.P. for Edmonton Strathcona tabled an important private member’s Bill C-387 which would limit the exclusive authority of the Minister responsible for administering the Canada Pension Plan (CPP) and the Governor in Council from allowing a province to withdraw from the pension plan.
This exclusive executive authority under section 4(3) of the CPP Act fails to recognize that the Act is a creation of both the federal government and participating provincial governments. As you know, the CPP is a cornerstone of retirement income for many Canadians. The proposal by the Government of Alberta to explore withdrawing from the CPP is alarming and, if allowed, might potentially have significant adverse implications for Canadians outside Alberta, besides Albertans.
This issue was discussed with your provincial and territorial colleagues at a meeting last year with the result that the Chief Actuary is being given directions on how to develop estimates of the quantum of assets which might be transferred to the Alberta government under current legislation.
The CPP Act has changed very significantly since its creation with the CPP initially used as an instrument for provinces to borrow from the fund based on its population’s contributions. This financing arrangement has not been the situation for over two decades with the establishment of a sophisticated institutional investor, the Canada Pension Plan Investment Board (CPPIB).
Significantly, at the time of the amendments to the CPP in the late 1990s, the new institution was purposefully designed to be insulated from political direction- federal or provincial.
This important element, the clear prohibition on political interference unfortunately is not built into the Alberta proposals which promise “More Alberta, Less Ottawa,” whatever that means. The Government of Alberta’s slick marketing campaign is highly problematic and misleading as the CPP Investment Board has documented in a letter to Jim Dinning, the panel chair looking into a CPP exit for Alberta.
Parenthetically, the Government of Alberta has also not been forthcoming with respect to Freedom of Information requests designed to learn what the public service was advising as well as survey results initiated by the provincial government.
Most Albertans are very worried about the prospect of an Alberta Pension Plan and for good reason. While the Alberta Pension Protection Act promises a plan would not be introduced without a referendum, the legislation can be repealed at any time.
Ms. McPherson’s elegant amendment to section 3 of the CPP Act would require agreement of at least two-thirds of provincial governments representing not less than two thirds of the population of all the provinces. This amendment is a simple and fair solution to a potentially thorny political problem. Moreover, this amendment is a long overdue solution to making antiquated withdrawal provisions current with the existing structure of the Canada Pension Plan.
I therefore strongly urge your government to consider adopting these provisions at the next session of Parliament.
Yours sincerely,
Robert L. Ascah
c.c. Heather McPherson, M.P., Edmonton Strathcona
I received an email reply from the Finance Department on 3 February.
Dear Dr. Ascah:
Thank you for your correspondence of August 12 and December 4, 2024 regarding Private Member’s Bill C‑387 and Alberta potentially withdrawing from the Canada Pension Plan (CPP). Please excuse the delay in replying.
Every Canadian worker deserves a secure retirement. The CPP helps to give Canadian seniors a reliable and stable source of income after they retire – giving them greater income security and peace of mind.
Helping Canadians achieve their goal of a safe, secure, and dignified retirement is a key part of the Government of Canada’s plan to help the middle class and those working hard to join it. As part of this plan, the Government worked with all provinces and territories to enhance the CPP to ensure that future generations of Canadians can count on a strong public pension system in their retirement years. A stronger CPP is now a reality with the implementation of the enhancement agreed upon by Canada’s Ministers of Finance in June 2016.
The CPP is a national contributory public pension plan for all workers in Canada, except Quebec. The CPP is portable across jobs and provinces. This encourages labour mobility across the country to help fulfill the needs of workers and employers. Benefits paid are based on the contributory history of an individual. Maintaining one plan allows administrative costs to be kept to a minimum.
The CPP legislation provides a framework for a province, such as Alberta, to establish their own comprehensive pension plan as long as a series of conditions are met. These conditions include a three‑year written notice from the province, the passage of comparable legislation by the province, and the assumption of all the obligations and liabilities of CPP benefits due to employment or self‑employment in that province (even for individuals who no longer reside in that province).
A province may exit the CPP without the consent of other provinces. This is consistent with constitutional provisions. The constitutional basis for the Canada Pension Plan is section 94A of the Constitution Act, which both acknowledges concurrent provincial jurisdiction over old age pensions and provides that provincial laws are paramount over federal laws in this area.
Private Member’s Bill C‑387 (An Act to amend the Canada Pension Plan) proposes that a province can only exit the CPP if there is approval from provinces representing two‑thirds of the population of participating provinces (i.e., excluding Quebec). Before the Government could make amendments to the CPP legislation in this area, legal analysis would be required to determine if such amendments would be constitutionally valid. In addition, there are other considerations that would need to be examined before considering the changes proposed by Bill C‑387.
Albertans do not overcontribute to the CPP. Workers in Alberta pay the same contribution rate as workers in other provinces, and beneficiaries in Alberta receive the same benefits as workers in other provinces. The Government of Alberta’s asset transfer estimate is based on a flawed interpretation of the existing legislation. The actuarial report it commissioned arrived at a number that would result in Alberta receiving 53 percent of CPP assets while only having 15 percent of the population of Canada (excluding Quebec). If the Government of Alberta’s methodology were used for other provinces, there would not be enough assets in the CPP for all provinces to exit.
It is important that Albertans, and all Canadians, have all the relevant facts before a decision is made. The transfer of assets and liabilities needs to be fair for Albertans and other contributors to the CPP.
That is why Canada’s Finance Ministers met on November 3, 2023, to discuss this important issue. After this meeting, and on behalf of provinces and territories, the federal government announced that it was asking the Chief Actuary to provide an estimate of the asset transfer amount that Alberta would receive based on a reasonable interpretation of the provisions in the CPP legislation.
After this, the federal government and provinces agreed to a two‑step approach:
- The Chief Actuary would prepare a report on interpreting the asset transfer provisions in the CPP legislation, informed by the views from a panel of actuarial experts.
- Based on an agreed upon interpretation, the Chief Actuary would prepare a report which would calculate the asset transfer that Alberta would receive if it were to exit the CPP.
The first stage of this work is now complete. The Chief Actuary provided a report of her interpretation of the asset transfer provisions in the CPP legislation, with the assistance of an Independent Advisory Panel composed of some of Canada’s top actuaries and pension experts. A copy of the report can be found on the Government’s website at www.osfi-bsif.gc.ca/en/oca/oca-factsheets-other-reports/chief-actuary-position-paper-subsection-1132-canada-pension-plan.
As part of the next stage of the process, the federal government and provinces will be meeting to discuss how to proceed with obtaining an estimate of the asset transfer amount based on a reasonable interpretation of the CPP legislation. The Government has full confidence in the Chief Actuary’s work and trust that her analysis is thorough and impartial, ensuring fairness for all Canadians.Exiting the CPP is a long, and complex process that has never been done before. If Alberta were to set up its own pension plan, it would also have to staff and set up systems to collect contributions and deliver pension benefits. An agreement between Alberta, Quebec and the Government of Canada would need to be negotiated to ensure the portability of benefits between the plans to encourage labour mobility across the country to help fulfill the needs of employers. In addition, a provincial pension plan would not enjoy the same economies of scale, pooling of risk, and investment advantage available through the CPP.
The CPP is an important enabler of our economic union, and the ability of Canadians to move around the country to find work or retire, without worrying about the portability of their pension benefits, has worked well for Albertans and Alberta businesses.
Given her responsibilities pertaining to the CPP, we have forwarded a copy of your correspondence to the Minister of Seniors, the Honourable Joanne Thompson, for information and consideration.
Thank you again for taking the time to write on this important issue. You may also wish to write to the Government of Alberta to share your views.
Sincerely,
C. da Silva Manager, Communications and Public Affairs Branch, Finance Canada
Comments on Letter
There are several items of note contained in the official’s response. First, the issue of constitutionality. Pensions are shared jurisdiction and a legal analysis would be required to ensure a constitutional challenge would be withstood. I think it unlikely that if provinces were asked to agree to the change, there would be significant objections.
The letter also enumerates the many steps required to bring an Alberta Pension Plan to fruition. Withdrawal requires three-years notice and during that time considerable work and expenses would be necessary to prepare Alberta to invest the assets and to enter into portability agreements.
Notably the letter is silent on the question of APP management being strictly insulated from political direction. Given Alberta’s recent moves at AIMCo and the creation of the Heritage Fund Opportunities Corporation, there are disturbing signs that politicization of pensions will be central for Alberta’s sovereignist aspirations.
With respect to the work of the Chief Actuary in following directions from provincial, territorial, and federal ministers of finance, it seems that there is an understanding that the actuary would prepare a report calculating the asset transfer that Alberta would receive if it were to exit the CPP. If that is indeed the case, then we should expect a number or range of numbers from the Chief Actuary based on her work. This is consistent with what Premier Smith stated in December concerning the absence of a number.
Given the current political environment federally, the uncertainty governing Canada-U.S. relations and in the absence of any mention by the Chief Actuary of developing an estimate or estimates, it is very unlikely that this file will move forward in the near future. Of course, there is the possibility that the provincial budget at the end of this month may provide some details about Alberta’s designs on the CPP.
Parenthetically, Professor Trevor Tombe whose work on the APP withdrawal was noted and supported by the Chief Actuary, does not believe the APP notion is dead. In a post on The Hub, Dr. Tombe argues the Alberta government could bring a reference case to the courts to get a judicial interpretation of the withdrawal formula. Tombe also believes that the Alberta government could promise reduced premiums though not a the level proposed assuming an initial deposit of $334-billion. Be also states that the number is relatively easy to calculate and that the Alberta government already has a number.
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