The Alberta Pension Advantage? A Quantitative Analysis of a Separate Provincial Plan

Abstract

A separate Alberta Pension Plan (APP) has gained renewed attention. This paper assesses the long-run viability of such a plan, using both a detailed quantitative model and simple, intuitive approaches. I find only modest scope for changes in benefit levels and contribution rates relative to the Canada Pension Plan (CPP). Specifically, I estimate an APP minimum contribution rate of 8.2 percent, compared to the CPP's 9.5 percent. With the same 0.4 percentage point cushion as in the CPP, the APP legislated contribution rate would then be 8.6 percent. This is in sharp contrast to a recent government-commissioned report, which found a contribution rate of 5.9 percent (LifeWorks, 2023). I explain this disparity and show that much depends on how one interprets imprecise language in the CPP Act. I also explore several relevant risks. Alberta’s positive net migration flows, for example, account for nearly two-thirds of its pension advantage. And, depending on the time horizon, investment risks may eliminate its entire advantage. Overall, this paper not only provides an updated foundation to evaluate the strengths and weaknesses of an APP but also to understand pension sustainability more broadly.

Keywords: Canada Pension Plan, Alberta Pension Plan, Demographics, Government Finances

JEL Classification: H55, H75