Provincial pension plan could have big benefits for Albertans—and big costs for rest of Canada

According to a new report by the Smith government, if Alberta withdrew from the Canada Pension Plan (CPP) and created its own provincial pension plan, Albertans could save $5 billion annually while CPP costs for other Canadians would need to increase to keep the CPP sustainable. In other words, an Alberta pension plan would have big implications not only for Alberta, but also for the rest of Canada (minus Quebec).

Currently, Albertans pay a basic CPP contribution rate of 9.9 per cent, typically deducted from their paycheques every two weeks. According to the government’s report, that rate would fall to 5.91 per cent for a new CPP-like provincial program for Albertans, which means each Albertan would save up to $2,850 in 2027—the first year of the hypothetical Alberta plan—while retaining the same benefit levels as the CPP. Meanwhile, the basic CPP contribution rate for the rest of Canada would increase to 10.36 per cent.

Notably, however, the government’s analysis assumes that Alberta’s demographic advantage will disappear over time, an unlikely development given historical trends, which means the Alberta plan’s contribution rate could be even lower than assumed. Put differently, if Alberta maintains a relatively younger population compared to the rest of the country, which means a larger share of the population is working and contributing to the pension plan, the savings to Albertans could be even larger.

Moreover, because Albertans would contribute less of their income to the provincial pension plan (again, equal to an estimated $2,850 per Albertan in 2027), they’ll have more money to save in RRSPs, TFSAs or other savings vehicles. That would be good news for Albertans, considering that the projected real rate of return for CPP contributions is an anemic 2.5 per cent for workers born in 1993 or later compared to 10.7 per cent (nominally, on average per year) for the S&P 500, a common market index, since its introduction in 1957. In other words, even after adjusting for inflation, investing the excess savings in simple market indices could yield greater returns for Albertans.

The idea of an Alberta pension plan (dubbed the “APP” in the report) isn’t new and first gained attention in 2001 when a group of prominent Albertans drafted the Firewall letter arguing that the province should take charge of its own future after being marginalized by Ottawa. The idea was resurrected in 2020 when the province’s “Fair Deal Panel” recommended the province seriously reconsider the viability of a provincial pension plan to replace the Canada Pension Plan, as Quebec has done.

Clearly, Albertans contribute disproportionately to the federation, largely because the province has a disproportionate share of the country’s working age population (drawing workers from other provinces), a higher employment rate, and higher average earnings than the rest of Canada.

From 2008 to 2017, for instance, Alberta’s net CPP contribution (the amount paid into the plan by workers versus the amount paid out to retirees) was $27.9 billion. If we extend the same analysis to include all federal taxes and spending, Albertans contributed a staggering $221.4 billion more to the Canadian federation than they received from 2007 to 2015. Because Albertans contribute substantially more to federal programs than they receive back, without Alberta’s participation, Ottawa would need to make fundamental changes to maintain many of these programs.

Finally, the fact that Albertans contribute disproportionately to the federation is not in and of itself a problem. The problem arises because Ottawa is simultaneously targeting Alberta with economically damaging federal policies. Since 2014, the federal government has introduced numerous regulations that have hamstrung Alberta’s energy sector including Bill C-69 (which overhauled Canada’s federal environmental review process, making the regulatory system more complex, uncertain and subjective), Bill C-48 (which banned large oil tankers off British Columbia’s northern coast, creating a barrier to exporting Canadian oil to Asia), a hard cap on greenhouse gas emissions in the oil and gas sector (while ignoring all other sectors of the economy that emit GHGs), and a new mandate to create a “net zero” electricity grid by 2035, a task much more challenging for provinces such as Alberta that rely heavily on natural gas.

The idea of a provincial pension plan grew from the frustration of Albertans, but with tangible benefits for Albertans, it could actually become a reality. The federal government should respond to Alberta’s legitimate call to renegotiate federal policy—for the benefit of all Canadians.