An Alberta Pension Plan is a polarizing topic.
If you’re looking for a polarizing topic in Alberta, this is it. I’ve gone to the meetings and heard the arguments from both sides. Some like the Canada Pension Plan, how it’s managed, and want to keep it no matter what. Others don’t like the CPP, how it’s managed, and want out no matter what. At the end of the day both camps fundamentally want the same thing. Financial stability for their retirement.
Canadians earning a wage or salary aren’t allowed to opt out of the government pension plan. However, the Constitution says Provinces can have their own pension plan as long as it is the same or better than the one provided for by the federal government. Preliminary numbers suggest Alberta can accomplish this without any trouble, which got me thinking. Rather than continue the who-is-right-tug-of-war, why don’t we put down the rope and explore the possibility of giving Albertans the right to choose.
The Canada Pension Plan is managed by the Canada Pension Plan Investment Board (CPPIB) which is appointed by the federal government. Why can’t Albertans set up an investment board of our own in a way that makes sense for us? Here’s what that could look like.
Albertans opting to go with an APP would vote eight Directors to the APP Investment Board. A vetting process would need to be created, obviously, but that’s easily done. These Directors must be full Canadian citizens and an Alberta resident for a minimum of 5 years, to start. Small honorariums of not more than four figures plus travel expenses within the country should be provided.
The immediate upside to this is those board positions are filled by Albertans for Albertans, not by political appointment. Some will choose not to vote, letting others decide, and that’s their prerogative. The opportunity is there for all.
The Investment Board of Directors would be in charge of hiring and managing an Executive Director whose job is to oversee the day-to-day operations of the pension fund. The salary for this position could be comparable to an MLAs base salary with a bonus structure predicated on fund performance.
Already this plan provides significant cost savings when compared to the CPPIB. For example, the President and CEO of the CPPIB alone makes over $5million/year in salary and compensation.
Because this is essentially one investment portfolio being managed on behalf of all rather than individuals, it seems to me a team of not more than ten Fund Managers should be sufficient. However, I could be wrong on that and open to correction from those within the investment community. Fund Managers would be hired by the Executive Director in consultation with the Board of Directors. Successful candidates must be Canadian Citizens and Alberta residents for at least five years. He/she must have a proven track record of investment success and not be fresh out of business school. Additionally, there will there be no DEI hires. If you can’t do the job, you don’t get the job. Compensation packages for Fund Managers would be a base salary plus commission relative to private industry standards. There would be a small support staff as well, whose wages would also correspond with private industry standards.
Now that the fund is set up, let’s talk investments. Most people like to feel good about where their money is going and want to see it helping people who matter to them. Because Albertans matter, let’s invest in us.
The fund managers would research Alberta based companies. Those with strong earning potential that are looking for investors get put on the list. It’s much the same as what the current CPP fund managers do, except we would support ourselves. Some may suggest that’s limiting, but remember Alberta has an incredibly diverse economy to invest in. Oil, gas, agriculture, and farming are the most obvious but it doesn’t stop there. Advances in healthcare, tourism, lithium, forestry, manufacturing, education are also great examples of Alberta investments. Heck, we could even invest in getting coal back online and watch our power bills come down.
What if the APP had its own website where every company being invested in, along with how much has been invested, would be clearly listed. Easy to understand explanations as to why the Fund Managers identified those companies as great investment opportunities would be provided, along with links to their websites. Reports of how the fund is doing would be updated quarterly. Salaries and expenses of all Board Members, the Executive Director, and Fund Managers would be listed in plain numbers as well. Furthermore, contributors could login and see how their own pension plan is coming along.
Now let’s explore a couple of ‘what if’s…?’
As it stands now, it doesn’t matter what the current CPP fund does, the payout formula is based on the payee’s income. Which means someone is benefitting from the funds’ growth, just not the pensioner. Additionally, the way the payout structure is designed, it’s very doubtful you’ll get back every dollar you put in.
What if the APP funds’ performance was reflected in your pension? In other words, what if your pension grew both by contribution and in relation to how the fund is performing overall. And what if every dollar you paid in was guaranteed to be paid back to you or your beneficiary should you die before collecting it all? Isn’t that how it should be, anyway? It’s your money.
There is another ‘what if’ that should be seriously considered. What if our Alberta pension was tax free? Unfortunately, we couldn’t keep the federal governments paws off of it without creating an Alberta Revenue Agency, but we could at least make it exempt from Alberta personal income tax. Imagine how reassuring it would be see your parents enjoying the fruits of their labor knowing the province isn’t taxing that money. I think that’s pretty cool.
Financial security is truly what’s at the heart of the whole pension debate, particularly for those who don’t have much to begin with. And it’s why I think providing choice is so incredibly important. Albertans who want to stay with the CPP could do so and Albertans who don’t want to shouldn’t have to. Setting up an APP provides another option for us and creates some peace of mind for all.
For Albertans by Albertans. The APP could be yet another ‘made in Alberta’ success story.