An APP would deliver “same or better” results for Alberta’s pensioners
There’s been a lot of interest recently in the creation of an Alberta Pension Plan (APP), a made-in Alberta pension plan that would fully replace the Canada Penson Plan (CPP) now in place for Albertans. Understandably, seniors currently receiving CPP payments have questions about how they’d be affected under an APP. Here are some common questions and straightforward answers.
Why are Albertans talking about creating an APP?
The CPP has been demanding larger and larger contributions from each Albertan’s paycheque over the years to keep the plan solvent. The contribution rate is currently set at 10.5 per cent (and rising), with employers providing half that amount. However, compared to the rest of Canada, Alberta’s population skews younger, its labour participation rate remains higher and its family incomes are larger. That means Albertans are disproportionately propping up the CPP, supporting seniors in provinces that skew older and contributing far more than they’re currently receiving.
How much does that difference in contributions add up to?
A report by the Fraser Institute published in 2019 calculates that Alberta workers contributed $27.9 billion more in CPP premiums than they collected in CPP payments for the period from 2008 to 2017 — a massive net cash outflow from the province.
How could an Alberta Pension Plan change that balance?
Under an APP, all of the money collected from Albertans would be used to support Alberta’s seniors instead of those in other provinces. The Fraser Institute report offers a scenario in which APP contribution rates could also be reduced to as low as 5.85 per cent.
Are there any laws governing the amount of money a pensioner would receive under APP?
The Constitution of Canada allows each province the option of leaving the CPP and establishing its own provincial pension plan. The only requirement for creating an APP is that the new provincial pension plan guarantees at least the same benefit level as the CPP it replaces.
Could pensioners in Alberta receive larger pensions than their counterparts in the rest of the country?
Certainly. Under an APP, Albertans wouldn’t be subsidizing lower CPP payments elsewhere, so Alberta could offer more in payments to pensioners at the same time as lowering premiums. And an APP would allow that decision to be made in Alberta, not in Ottawa.
The independent Quebec Pension Plan (QPP) and the current CPP were both established in 1966, and QPP payments to pensioners have remained competitive with, or better than, those offered under CPP.
What if Alberta’s demographics also begin to shift older?
Alberta’s population will likely shift slightly older in the future. However, according to the Fraser Institute study, even under a CPP scenario where Albertans contribute 10 per cent more to the program and benefits increase by 10 per cent, an APP still provides clear advantages.
If I am receiving Old Age security (OAS) or the Guaranteed Income Supplement (GIS). Would that change under an APP?
APP would be a pension program founded on your own contributions. OAS and the GIS are federal income supplements derived from tax revenue. If you qualify for these payments now, you would continue to receive them under an APP.
I’m thinking of moving to another province in the future. Who would pay my pension, APP or CPP?
The QPP has already established the way in which pension benefits are allocated when you move to another province. Pension payments would be allocated based on how many years you worked and contributed to the APP and how many to the CPP. If you retire in another province, you would apply to CPP, which would pay your benefits. The CPP would, in turn, recover those costs from the APP.
Are there any other reasons to support an APP?
Supporting an APP will allow the province to recoup some of the cash that supports federal government programs, disproportionately leaving the province while providing no net benefit.
Keeping billions of dollars inside the province would allow the province’s pension fund managers to invest, where prudent, in Alberta businesses or in businesses that support Alberta’s economy.
Your children and grandchildren would likely pay lower pension premiums under an APP and be able to use that money now, while they’re still young, allowing them to save for education, pay off their mortgages, support their families, or contribute to an RRSP — even while their future pension benefit levels would be protected.
In short, an APP promises to provide the same or better pension benefits while improving the lives of Albertans and the province’s economy.
National Post article Here.
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