The prospect of Alberta pulling out of the Canada Pension Plan in favour of its own pension scheme is back in the spotlight with an independent report — three years in the making — claiming the oil-rich province is entitled to more than half of the assets in the CPP Fund.

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The total entitlement of up to $334 billion of the fund’s projected assets by 2027 is contained in a report by Lifeworks, a unit of Telus Health, and is based on calculations of what the contributions of Albertans would be worth had the province never joined the national pension scheme, which was launched in the 1960s.

No official timeline has been given by the Alberta government that commissioned the report. However, the province’s finance minister, Nate Horner, said during a Sept. 21 news conference that pension protection legislation will be introduced this fall to ensure Albertans have a say on whether to leave the Canada Pension Plan and to ensure that an Alberta Pension Plan, if pursued, would offer the same or better benefits and the same or lower contribution rates as the existing CPP.

The Lifeworks report concludes that Alberta, as a province with a younger population with higher employment rates and well-paying jobs, has contributed more than its share to the fund and would therefore be responsible for and entitled to a greater portion of the returns.

A province that accounts for only 16% of total contributions can't legally or realistically be allowed to claim more than half the assets

Michel Leduc, global head of public affairs at CPP Investments

But Michel Leduc, senior managing director and global head of public affairs at CPP Investments, the pension management organization that invests on behalf of the CPP Fund, said that while he respects the rights of provinces to create their own pension plans, the transfer formula contemplated in the Lifeworks report is “impossible” given the composition of the national pension scheme.

“A province that accounts for only 16 per cent of total contributions can’t legally or realistically be allowed to claim more than half the assets,” Leduc said, adding that if Ontario were to pursue a transfer based on contributions from Canada’s most populous province using the same formula, the entire fund would be drained and remaining provinces would owe money to the two provinces withdrawing.

“If they (Ontario) were to go, there wouldn’t be enough money in the CPP Fund to fulfill Alberta’s claim,” he said.

Leduc added that the lion’s share of the CPP Fund’s total assets of $570 billion at the end of fiscal 2023 came from investment returns, which were only possible because of the national fund’s size and scale.

Given the stakes, it is anticipated that any withdrawal from CPP will be challenged and subject to negotiation, with observers suggesting the matter could go to court. Lifeworks, however, concluded that other provinces don’t have a legal say in whether Alberta withdraws from CPP because, under the federal Canada Pension Plan Act, a province is required only to provide written notice to the government and meet certain conditions. These include providing benefits which are at least as good as the benefits provided by the CPP and assuming all obligations and liabilities for CPP members in the province.

In addition, a replacement provincial pension must be ready to go on its own at the start of the third year after notifying the government of the intention to withdraw from the national pension scheme.

Quebec operates a separate pension plan, but the province never joined the national pension scheme. In addition, Canadians can move between provinces, contribute to both the Quebec Pension Plan and the Canada Pension Plan, and collect harmonized benefits on retirement depending on where they live.

Alberta Premier Danielle Smith, like her predecessor, Jason Kenney, whose government started the ball rolling on the Lifeworks report, has portrayed pulling out of CPP as a way for Alberta to take control of how the money is invested, with an eye to bolstering the province’s oil and gas sector.

Alberta officials have previously suggested the province will not pull out of CPP without taking the views of Albertans into consideration, including a possible referendum on the issue.

Malcolm Hamilton, a pension expert who was instrumental in a 1995 Canadian Institute of Actuaries report that helped lead to legislation in 1998 that increased funding for the Canada Pension Plan, said this is not the first time Alberta has examined the possibility of withdrawing from the CPP and the issue has always been how a separate provincial pension plan would be able to manage the liabilities.

“Who will be responsible for all the pensions owed to retired and working Albertans and former Albertans for contributions they have already made?” Hamilton said, noting that if the CPP fund were to hand over a share of the assets it would also “offload” a big chunk of its obligations.

“You don’t get (or deserve) the assets without accepting the corresponding obligations,” Hamilton said in an email.

Detractors of a go-it-alone Alberta pension plan have also pointed to the hefty administration costs of running such a fund. Alberta officials said during the Sept. 21 news conference that an Alberta Pension Plan (APP) could cost up to $2.2 billion to set up.

Kenney had floated the idea for a standalone Alberta Pension Plan to be managed by Alberta Investment Management Corp. (AIMCo), which already manages $158 billion in pension and endowment assets in the province.

But when Alberta’s withdrawal from the Canada Pension Plan was widely discussed in 2019, Alexander Dyck, a professor of finance and policy at the Rotman School of Management who has researched large pension fund performance, said a large influx of money would be difficult for AIMCo to manage.

“If I give you twice as much money as you had yesterday, you’re not going to be able to deploy that money and mimic the returns that you had yesterday,” he said at the time, adding that investing in private equity, infrastructure and real estate does not necessarily scale as easily as investing in stocks.

• Email: bshecter@postmedia.com

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