One of Canada’s leading pension experts is warning Albertans to consider the “double jeopardy” of falling contributions and investment asset values they might be subjecting future generations to if they replace the Canada Pension Plan with a provincial alternative.
In a report published on Wednesday, Keith Ambachtsheer, the director emeritus at the International Center for Pension Management, said that a potential switch to a provincially run pension plan could cost hundreds of millions of dollars to establish and would also put its contributors in danger of facing significant underwriting and investment risks. Primarily, Ambachtsheer is concerned an Alberta Pension Plan could be used to double down on the oil and gas industry.
“It’s a simple diversification argument: If your underlying economy is to a significant degree dependent on the health of a particular industry that if you also put your retirement savings into that industry, it’s double jeopardy,” Ambachtsheer said.
In November, Alberta Premier Jason Kenney floated the idea of making such a change, amid frustrations that the province’s economic interests were being neglected by Ottawa. A “fair deal” panel made up of former politicians and business leaders has since been created and has been consulting with Albertans through town halls about withdrawing from the pension, among other issues.
Some of the appeal surrounding a withdrawal is centered around the potential for Albertans to make lower contributions than the current 9.9 per cent of pay. Studies from the Fraser Institute and C.D. Howe suggested that an Alberta Pension Plan could cut contributions to the six to eight per cent range while providing the same benefits. This is mostly due to the fact that the majority of Alberta’s contributors are much younger and higher-paid than the rest of Canada’s.
Ambachtsheer questioned that possibility due to the potential of Alberta’s younger citizens leaving the province for greener pastures should the oil and gas industry continue to decline. Should the industry continue to struggle, Ambachtsheer worries there could be fewer jobs available in the province, especially those that pay well. That could impact the total contributions made to an APP and lead to an increase in the contribution rate.
No province has ever withdrawn from the CPP.