Danielle Smith's pension numbers suggest bumpy ride for contributors — with cushions removed

When Danielle Smith says Albertans would save $1,425 a year in an Alberta Pension Plan and other Canadians would pay "only" $175 more, the Alberta premier is trying to excite one group of people and calm the jitters of another.

But if these are the numbers Smith is using, then she's adding an extra layer of bumps and uncertainty to a future that has Alberta outside the Canada Pension Plan — and envisioning a world in which employees' contribution costs would bounce up and down from year to year.

To put it another way, Smith is boasting about a really great figure she can get Albertans onto for a variable-rate mortgage — and a halfway decent one for other Canadians — but she's dealing in the less volatile world of pensions, which operate in a way that more closely resembles conservative fixed rates.

Her rhetoric is at odds with the cautious way CPP and other major pension funds actually act. If it was rooted in how CPP typically responds to risks or pressures, Smith would be telling other Canadians left in the CPP that they'd face an increase that's more than 60 per cent higher than what she claimed, according to economist Trevor Tombe's estimate.

This point about caution (or lack thereof) doesn't come from reading some contrarian report from the APP idea's detractors. It comes from a close reading and comprehension of the very report Smith is deriving her numbers from: the Lifeworks feasibility report that her own United Conservative government commissioned.

Now, you might ask: if that report, and its eye-popping premise that Alberta is entitled to yoink 53 per cent of CPP's assets, is so widely questioned and criticized, is there any more merit to parsing the Lifeworks report than there is to speculating on what the green-cheese surface of the moon tastes like, or devoting 1,500 words to the merits of various Stanley Cup parade routes for this season's Calgary Flames?

This is the report Alberta's premier is using to make her case to Albertans, and digging into Smith's rhetoric and the Lifeworks study gives us signals about how much risk is embedded into the plan's chief proponent ideas on this.

It all takes some time to explain, and yes, there is some math involved. But not much! And I've tried minimizing the barrage of numbers.

The government's promotional materials for Smith's APP pitch state that its premiums "would save Alberta workers up to $1,425 every year while maintaining the same level of benefits for seniors." That number is straight from the Lifeworks report, based on the much lower contribution rates that Alberta could charge if it started its own provincial plan with one-third of a trillion CPP dollars in the bank.

Further, in Smith's recent letter to Prime Minister Justin Trudeau, she wrote: "the report estimated that the maximum increase to employee contribution rates for Canadians remaining in the CPP that would be necessary to maintain the current benefits and stability of the CPP in the event that Alberta withdraws would be only $175 per year."

This $175 figure doesn't appear in Lifeworks' study. Rather, Smith's team has taken the $3,754.45 annual CPP pension charges for high earners at the current contribution rate of 9.9 per cent, and compared it to charges at 10.36 per cent. That's what Lifeworks estimated as a new break-even rate for CPP if Alberta leaves.

But comparing 9.9 and 10.36 isn't comparing apples to apples. While 10.36 is the "minimum contribution rate" that Lifeworks actuaries estimated would be necessary in 2027 so CPP could keep paying predictable benefits long into the future, 9.9 isn't that. Rather, it's what CPP calls a "legislated rate" that Ottawa and the provinces agree to set in advance to give CPP rate-payers some predictability in what they'll pay, while also preserving security for the fund. (That rate has been the same since 2003, though officials review it every few years.)

The CPP's legislated rate of 9.9 per cent compares to its own minimum contribution rate of 9.54 per cent, calculated in its chief actuary's last report in 2021. That bounces around from actuarial report to report, but has consistently stayed below the actual rate that CPP charges.

Why is it important, this gap between the minimum contribution rate and legislated rate?