University of Calgary economics professor Trevor Tombe said people are right to question Alberta withdrawing from the Canada Pension Plan (CPP). .“It's a major policy question with complex pros and cons,” tweeted Tombe on Thursday. .Tombe acknowledged the Alberta Pension Plan (APP) is not a new idea. The Western Canada Concept Party pushed for the APP in 1982. .Tombe said the APP would make sense depending on the share of CPP assets it gets, future demographics, and future investment returns. The Alberta government suggested half of CPP assets would go to it. .He called this “problematic for many reasons.” It has unclear objectives. .First, he said it is a reasonable assumption. CPP’s external workers are operating in good faith. .This interpretation supposes the CPP Act puts a province in the same position it would be in if it had never joined it. .While this interpretation was sensible in the past, he said it has become not as much so today. If applied to Alberta and Ontario, he said more than 100% of CPP assets would be required. .Prior to the 1997 reform, excess CPP funds were given to provinces in proportion to their contributions. All of its earnings were provincial interest payments. .Now the CPP fund is a large, diverse portfolio. Earnings are not from the provinces. .Tombe said this leads to a different share of assets. He found it might be around 20% to 25%. .It leads to a minimum contribution rate of 8.2% — higher than the Alberta government’s predicted 5.9%. He said assets are crucial. .An 8.2% minimum contribution rate is a 1.3% drop from CPP’s minimum 9.5%. That is a savings of about $34 per month for a worker earning the maximum. .He admitted it comes with real risks. If migration is lower, mortality goes up, and assets received are less, most of the gains disappear. .Importantly, he said a separate plan is exposed to more risk than the CPP, which spreads across Canada. Investment risk is another massive issue the APP is exposed to more..With a provincial pension, he said the redistribution many people point to in the CPP are due to Alberta having a young population. Young people pay into pensions and get the benefits later. .Tombe concluded by saying there “may be benefits of a separate APP, yes.”.“But also costs in the form of higher risks,” he said. .“Whether those benefits outweigh the costs and risks is a critical policy question facing Albertans today.”.The APP could save Albertans billions of dollars each year, with lower contribution rates, higher benefits and stronger benefit security for families and retirees, according to a Thursday report conducted by LifeWorks. .READ MORE: UPDATED: Report says Alberta provincial pension move could save people billions.“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,” said Alberta Premier Danielle Smith. .“We want to hear from you because it’s your pension, your choice.”
University of Calgary economics professor Trevor Tombe said people are right to question Alberta withdrawing from the Canada Pension Plan (CPP). .“It's a major policy question with complex pros and cons,” tweeted Tombe on Thursday. .Tombe acknowledged the Alberta Pension Plan (APP) is not a new idea. The Western Canada Concept Party pushed for the APP in 1982. .Tombe said the APP would make sense depending on the share of CPP assets it gets, future demographics, and future investment returns. The Alberta government suggested half of CPP assets would go to it. .He called this “problematic for many reasons.” It has unclear objectives. .First, he said it is a reasonable assumption. CPP’s external workers are operating in good faith. .This interpretation supposes the CPP Act puts a province in the same position it would be in if it had never joined it. .While this interpretation was sensible in the past, he said it has become not as much so today. If applied to Alberta and Ontario, he said more than 100% of CPP assets would be required. .Prior to the 1997 reform, excess CPP funds were given to provinces in proportion to their contributions. All of its earnings were provincial interest payments. .Now the CPP fund is a large, diverse portfolio. Earnings are not from the provinces. .Tombe said this leads to a different share of assets. He found it might be around 20% to 25%. .It leads to a minimum contribution rate of 8.2% — higher than the Alberta government’s predicted 5.9%. He said assets are crucial. .An 8.2% minimum contribution rate is a 1.3% drop from CPP’s minimum 9.5%. That is a savings of about $34 per month for a worker earning the maximum. .He admitted it comes with real risks. If migration is lower, mortality goes up, and assets received are less, most of the gains disappear. .Importantly, he said a separate plan is exposed to more risk than the CPP, which spreads across Canada. Investment risk is another massive issue the APP is exposed to more..With a provincial pension, he said the redistribution many people point to in the CPP are due to Alberta having a young population. Young people pay into pensions and get the benefits later. .Tombe concluded by saying there “may be benefits of a separate APP, yes.”.“But also costs in the form of higher risks,” he said. .“Whether those benefits outweigh the costs and risks is a critical policy question facing Albertans today.”.The APP could save Albertans billions of dollars each year, with lower contribution rates, higher benefits and stronger benefit security for families and retirees, according to a Thursday report conducted by LifeWorks. .READ MORE: UPDATED: Report says Alberta provincial pension move could save people billions.“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,” said Alberta Premier Danielle Smith. .“We want to hear from you because it’s your pension, your choice.”
