Canada’s $427 Billion Pension Roiled as Alberta Mulls Split

The Canadian province of Alberta took a step toward pulling out of the national pension plan with the release of a report that says its residents are entitled to more than half of the fund’s assets.

(Bloomberg) — The Canadian province of Alberta took a step toward pulling out of the national pension plan with the release of a report that says its residents are entitled to more than half of the fund’s assets.

Conservatives who govern the oil-rich western province have long floated the idea of breaking away from the Canada Pension Plan as a way to assert more independence from the federal government. Their complaint is that the rest of Canada doesn’t recognize the Alberta energy industry’s economic importance and unfairly harms the sector with regulation. 

An especially potent grievance is that Alberta’s taxpayers and companies contribute more to federal coffers than the province receives in return. The study commissioned by the provincial government says Alberta — which has about 12% of Canada’s population — may be able to take C$334 billion ($247 billion) of the assets managed by Canada Pension Plan Investment Board, should it decide to pull out. 

CPPIB had C$575 billion in assets as of June 30.

“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,” Alberta Premier Danielle Smith said in a statement accompanying the study. 

The provincially commissioned study was conducted by benefits consultant LifeWorks, a unit of Telus Corp. The firm calculated Alberta’s potential share of CPPIB’s assets by factoring in its residents’ contributions to the fund minus their benefits payments, as well as the fund’s expenses and investment earnings.

While the CPPIB respects and supports the provinces’ ability to create their own pension plans, the C$334 billion that the report says Alberta is entitled to is “impossible,” said Michel Leduc, a CPPIB spokesman. Applying the report’s formula elsewhere would mean that Alberta, Ontario and British Columbia would have a combined claim that exceeds CPPIB’s total assets and would obligate other provinces to pay them additional funds should they decide to leave, he said.

A more realistic figure for Alberta would be about 16% of the pension’s assets, which tracks the province’s contributions to the fund, because CPPIB’s returns have been generated by the scale it gained from pooling contributions from across the country, Leduc said. A 16% portion of CPPIB’s current assets would be about C$92 billion. 

“That value creation has only been made possible because it’s a national plan that brings together contributions across 21 million contributors and beneficiaries,” Leduc said in an interview. “That has given a global scale and a global platform to go out and compete with the best investment managers in the world and create one of the rates of returns that is unseen anywhere else.”

Ultimately, any decision on what portion Alberta is entitled to would be made by Ottawa, which would be obligated to consult on the issue with the other provinces that participate in CPPIB, Leduc said.

Consultation Period

Alberta Minister of Treasury Board and Finance Nate Horner said his department is confident in the methodology used in the report. He also said he contacted the finance ministers from other provinces Wednesday night to let them know about the report’s findings, many of whom wanted to read the full study to better understand its methods.

Work on how a provincial pension plan would be managed and other considerations will be held off until the consultation with the province is completed, he said.

“We’re pretty committed right now to have this conversation with Albertans,” Horner said.

Smith’s government has promised there would be a consultation period and provincewide referendum on the issue before making a final decision on whether to try to withdraw from the Canadian plan and set up an Alberta Pension Plan.  

The idea gained momentum under former Premier Jason Kenney and was continued by his successor, Smith. While she won reelection this year on a campaign focused on resisting Prime Minister Justin Trudeau and his Liberal federal government, she said little about the pension idea during the campaign. Quebec, a larger province with a French-speaking majority, has its own pension plan. 

Her political rivals have attacked the idea, with polls showing only about one-fifth of Albertans were in favor. CPPIB is generally well-regarded in the country and seen as a globally competitive manager, with offices from Hong Kong to Sao Paulo.

By contrast, Alberta Investment Management Corp. had its image tarnished in 2020 by a bad bet against market volatility that cost the fund C$2.1 billion. Aimco, as the manager is known, currently oversees C$158 billion for 32 pension, endowment and government funds. 

The report laid out alternatives to Aimco running a provincial pension plan, including using existing Canada Pension Plan providers, using private managers or creating a new public fund manager. 

The study also concluded that Albertans and their employers would save C$5 billion in the first year of such a plan through lower contribution rates. On an individual basis, that works out to about C$1,425 in lower contributions for employees and employers, or C$2,850 for the self-employed. The report also raises the possibility that the province could increase benefits for retired people.

Still, all those figures are based on Alberta receiving the full C$334 billion in funds from the CPPIB. Smith said that assumption was “conservative, if anything” and that telephone town halls and a poll will be conducted to determine whether there’s enough support to hold a referendum on the issue.

“I’m persuaded by the numbers,” Smith said at a press conference after the report was released. “Now people understand why it is that it’s so compelling, but it’s still going to be up to them if they think it’s compelling enough to make this change.”

(Updates with CPPIB’s response starting in seventh paragraph.)

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