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Five things you should know about the APP proposal

There’s a word for the proposal to pull Alberta out of the Canada Pension Plan (CPP) and build a smaller, from-scratch provincial pension plan. 

The word is risky. 

Teachers, of course, appreciate the importance of words. And of math. And of taking the time to learn about important issues like the security of our collective retirement income. 

Albertans have every right to decide about future participation in the CPP. To do so requires additional information about the potential risks. 

Accordingly, here are five things the more than 45,000 members of the Alberta Teachers’ Association will want to know about the risks of breaking up the CPP:

1. Will contributions go down with the Alberta Pension Plan (APP)? 
Not necessarily. A report commissioned by the government claims Alberta could leave with $334 billion from the CPP— more than half the fund’s overall value—to launch its new plan and keep premiums low. But that claim is based on calculations that no other CPP participant will accept. Most pension experts and academics have disagreed with the report’s conclusions. 

The actual amount Alberta might leave with will likely be unknown for many years and only after tough negotiations occur. Without a large asset transfer, many of the purported advantages of an APP wither away and the risks increase, including demographic risk. Bottom line: don’t count on premiums falling under an APP. 

2. Do Albertans pay more and get less from the CPP? 
No. Albertans pay precisely the same premiums and receive exactly the same benefits as people in every other province that pays into the CPP. Sometimes advocates of an APP say the CPP is a raw deal for Albertans. The truth is the CPP is the same deal for everyone, everywhere. 

3. Could Alberta come back to the CPP after leaving? 
The legislation governing the CPP does allow for a province to withdraw. Many of the terms of that departure are unstated and entirely subject to discussion with the other participating provinces and governments. But one thing is crystal clear: the legislation makes no provision for a province to return after withdrawal. Breaking up with the CPP is a divorce, not a trial separation. 

4. Would an APP be portable with the CPP? 
A new APP would have to be relatively harmonized with the CPP (same benefits for example) and any major differences between the plans could compromise portability.

The Alberta government would also have to convince other CPP-participating governments, as well as Quebec, to recognize its new plan and set up mutual systems to ensure everything works seamlessly. What would be the chances of that after Alberta threatens to take more than half of the CPP’s accumulated value? 

For a country like Canada, labour mobility is extremely important. If a teacher from Ontario, for example, spends years working in Alberta and paying contributions into an APP but then moves away, will their benefits be protected? Will there be an APP for them? Or a CPP waiting? These are profound risks that individuals would bear under Alberta’s go-it-alone scheme. This decision not only affects Albertans, but every Canadian who has worked in Alberta and has pensionable earnings in the province dating back to the 1960s.

5. Is Alberta better off going it alone? 
Clearly not. There is hardly a pension expert alive who believes leaving the CPP is the better option. Keep in mind what withdrawal would unleash— arguments over who owes what, the high costs of setting up and paying for a brand new bureaucracy and establishing a new pension plan with less size, less scale and more vulnerability to interference from politicians. 

The CPP offers less risk and more reliability. The APP, on the other hand, is one giant question mark. 

Alberta’s teachers, like all Albertans, have a right to decide for themselves the best way to protect the security of their retirement income. But the debate that surrounds that decision should be open, honest and informed. 

People will want to do their homework before deciding. And who knows more about homework than our teachers? ❚

Michel Leduc is the Global Head of Public Affairs and Communications for CPP Investments, leading the team responsible for the organization’s overall communications program and global public affairs.

Michel Leduc
Michel Leduc

Global Head of Public Affairs and Communications for CPP Investments