Federal law requires that a province choosing
to opt out of the CPP must offer a publicly funded, universal
plan of pensions and disability benefits similar to the CPP.
To provide Albertans with the same benefits
as the CPP, Alberta could safely cut premiums by one-fifth
(from 9.9% of pension-able earnings to 8%), due to Alberta’s
young population and strong economy. (See tables 1 and 2 below)
The proposed plan would see the APP savings (i.e. the 1.9%
of pension-able earnings) invested in a government-regulated
“supplementary plan” belonging to individual contributors.
The Government of Alberta would increase this 1.9% contribution
by adding an additional .95% from provincial resource revenues
(see table 3 below). This would only cost the provincial government
an amount similar to one-third of a round of “Ralph
Bucks” (approximately $500 million).
A 20-year-old entering the Alberta workforce in 2013 (the
earliest an Alberta Pension Plan could be incorporated) would
almost certainly double the earnings they would receive from
the CPP over the same time period. Also, to do this they would
not have to pay one dollar more than he or she is paying today
into the CPP.
Table 4 below shows how much this private “supplementary”
account would add to a worker’s CPP-equivalent benefit
due to compounding of interest.
Someone starting out in the work force today and working
until age 60 (as many now do) would conceivably receive
triple what they could get from the CPP, and could rely
on the APP as a sufficient retirement plan in itself. (Benefits
to older workers would be correspondingly less.)
Advantages
to Alberta businesses
The APP would significantly strengthen
the flow of needed workers into Alberta.
It would make every worker a private
investor, mindful of his capital earnings and sympathetic
to the needs of private enterprise.
The capital funds built up over time to secure the APP
would create a major new source of local investment capital.
Though there should be no statutory requirement for the
fund to invest locally, it would still have a positive effect
on Alberta’s economy.
Advantages to the Government of Alberta
A provincial pension plan resulting in a significant
pension fund will form the permanent financial and political
foundation of a new Alberta, just as it has for Quebec since
the 1960s.
The APP would require the provincial government to manage
public revenues more carefully, and save more money.
It would create a stronger sense of provincial purpose
and identity among Albertans, young and old.
It would send a salutary message to Ottawa and the people
of Canada about strengthening Alberta’s place in Confederation.
Table 1
Current Contribution
Rates for the Canada Pension Plan
Employer
4.95%
Employee
4.95%
Total
9.90%
Table 2
Projected Alberta
Pension Plan Contribution Rates for equivalent
benefits*
Employer
4.0%
Employee
4.0%
Total
8.0%
Savings of APP against
CPP - 1.9%
*Mean of Fraser Institute projection
and CPP Chief Actuary's projection based on a much
Younger Population than the CPP with better Economic
Growth.
Table 3
Contribution rates
of the APP Basic Plan (CPP equivalent) and Supplementary
Plan
Basic Plan
Supplementary
Plan
Total
Employer
4.0%
0.95%
4.95%
Employee
4.0%
0.95%
4.95%
Provincial Govt.
NIL
0.95%
0.95%
Total
8.0%
2.85%
10.85%
The Provincial Government
contribution from resource revenues would be initially
less that $500 million a year.
The table below contains calculated projections
for the additional benefits (forming part of the APP) in the
form of a lump sum at age 65.
Since it would be at least January 1, 2013 before
the APP would be up and running (assuming 3 years notice would
be provided in 2009), we have based the Earnings on 2013.
We have also used investment returns of 4%,
6% and 8% on the 0.95% of contributions from the employer,
employee and the Province.
Table 4
Accumulated funds
at age 65
Age
in 2013
Earnings
in 2013
20
30
40
50
60
Interest at 4.00%
20,000
107,241
58,231
28,971
12,068
2,780
30,000
167,008
91,087
45,571
19,119
4,445
40,000
226,774
123,942
62,172
26,169
6,110
50,000
279,399
152,872
76,788
32,378
7,576
Interest at 6.00%
20,000
173,040
83,673
37,278
13,982
2,915
30,000
270,459
131,219
58,728
22,165
4,661
40,000
367,878
178,764
80,178
30,349
6,407
50,000
453,656
220,628
99,065
37,554
7,945
Interest at 8.00%
20,000
292,434
123,599
48,607
16,261
3,056
30,000
458,624
194,304
76,689
25,795
4,888
40,000
624,815
265,009
104,771
35,329
6,719
50,000
771,146
327,264
129,497
43,723
8,331
The Provincial Government contribution from resource
revenues would be initially less that $500 million
a year.
Alberta Pension Plan (APP)
Double
your retirement income
Advantages
to Alberta businesses
Supplementary
Plan