The final decision of whether or not Alberta will withdraw from the Canada Pension Plan (CPP) and form its own provincial pension plan will ultimately be a decision that is left up to Albertans, possibly via a referendum. But the shift could cost up to $2.2 billion.

On Thursday, the province released a report done by LifeWorks, an independent consulting company, exploring what the costs, benefits and structure of a potential Alberta Pension Plan (APP) would look like, following a recommendation by the Fair Deal Panel.

"The release of the report is only the first step towards considering a provincial pension plan. The Alberta government will not switch to APP unless Albertans have their say on whether or not an APP is right for them," Alberta's Minister of Finance, Nate Horner stated during a Thursday morning press conference. 

The province intends to utilize an engagement panel to further consult with Albertans.

"Feedback from Albertans, employers and stakeholders will determine if an APP should go to a referendum. The government also plans to introduce legislation in the fall 2023 session that, if passed, would require a referendum before the province could shift from the CPP," the province stated.

While the report states that it does not provide any recommendations or endorsements relating to the creation and operation of an APP or recommendation in relation to the current or future operation of the CPP, it does state that the province can withdraw from the CPP if certain conditions are met, including written notice it intends to set up its own provincial pension plan.

A provincial pension plan would also have to meet three conditions, which include providing benefits to seniors which are at least as good as the benefits provided by the CPP, assuming all obligations and liabilities for CPP members in Alberta, as well as being in place at the start of the third year after notifying the federal government.

Considering the cost of setting up an APP, Premier Danielle Smith underlined that within the first year of an APP, Albertans could see $5 billion in savings.

"What does $5 billion in savings mean for Albertans? While there are a few potential scenarios; $5 billion could mean more money for seniors who could see larger monthly pension benefits. Seniors might even receive a $5,000 to $10,000 bonus payment when they retire - if that's how Albertans want to design the pension."

If all the conditions were to be met, along with a referendum in favour of leaving the CPP, the report estimates, hypothetically that an APP would come into effect on January 1, 2027 - though the province underlined this is a hypothetical date.

"An APP would also be entitled to a share of CPP assets. The calculation of this amount is set out in the CPP Act and is equal to Albertans’ contributions less benefit payments and expenses accumulated with net investment earnings. Using publicly available information, we estimate this asset amount to be $334 billion on January 1, 2027, for the Base CPP using our reasonable interpretation of the CPP Act," the report stated.  "Due to Alberta’s younger population, higher pensionable earnings, and higher employment rates, contributions by Albertans to the CPP have historically exceeded the benefits paid to Albertans."

The report explained that because of the asset transfer from the CPP and Alberta’s current younger demographic, a Base APP would also be able to deliver benefits over the long term at a lower cost than the Base CPP.

"However, the cost of an Additional APP would be similar to the Additional CPP since current Alberta demographic advantages are assumed to disappear over the long term."

Alberta Pension Plan –  Analysis of Costs,  Benefits,  Risks and Considerations  Report from LifeWorks Alberta Pension Plan –  Analysis of Costs,  Benefits,  Risks and Considerations  Report from LifeWorks report shows the comparison of contributions rated under a proposed APP and the current CPP. (Graphic credit to Lifeworks)

"On an individual basis employees and employers would each have approximate full-year savings of up to $1,425 per employee. This individual savings estimate applies for individuals whose earnings are at or above the estimated 2027 Year’s Maximum Pensionable Earnings (YMPE)2 level; for those with lower incomes, the dollar savings will be proportionately lower."

However, the report underscored that if an APP would be established, the province may set a legislated rate for an APP that is different from that of CPP, and also different from the minimum contribution requirement.

"For example, it may set a rate higher than the minimum contribution requirement to provide contribution stability. If the legislated rate is set higher than the minimum contribution requirement, then the savings estimated above will be less," the report added.

Alberta would not have to seek approval from other provinces and legislation to create an APP would have to be passed at least one year before the plan starts.  

The original report was completed using the December 31, 2018, CPP actuarial valuation, however, LifeWorks has updated the report to include the most up-to-date public figures, which were released at the end of 2022.

The full version of the report can be found online.