The devil in the actuarial details: The problems with a $334-billion transfer from CPP to Alberta
The Alberta government has released a consultant’s report that includes a $334-billion estimate of the asset transfer from the Canada Pension Plan (CPP) fund to a new fund to be established for a stand-alone Alberta pension plan.
There are three distinct issues with this number. First, the provisions in the CPP Act concerning the asset transfer are not particularly clear. Second, the number is calculated using data by province of residence, whereas CPP operates on the province of employment. Last but not least, the transfer represents 53 per cent of the CPP fund and that seems too big when Alberta represents only 16 per cent of CPP contributions.
The withdrawal provisions in the CPP Act were introduced in 1965 when all of Canada’s provinces, except Quebec, first agreed to join the Canada Pension Plan. Ontario in particular wasn’t fully convinced of the merits of going into a national plan, so the 1965 CPP Act included a money-back guarantee, allowing provinces to change their mind. That’s what the Alberta government is proposing.
After 60 years of contributing the same rate and getting the same benefits as everyone else, the Alberta government is asking Albertans to renege on the decision to join in the first place. What was akin to a 60-day money-back guarantee is being used as a 60-year money-back guarantee.
The formula in the CPP Act provides for a refund of contributions with investment earnings attributed to those contributions, minus the related benefits and administration fees. What this formula fails to mention is critical. It fails to deduct investment earnings on benefits and fees. The consultant’s report notes that a literal interpretation of this formula would lead to an asset transfer of $747 billion — more
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