The Pension Debate. I have an idea...
One does not have to go very far to come across a sign that says ‘Don’t touch my CPP’ or some iteration of it. The arguments offered as to why these Albertans feel this way are quite baffling. Some genuinely believe they are going to lose out by transferring their CPP to an APP. Others are under the impression that if they decide to leave Alberta to live somewhere else, they will be forced to leave that pension behind. Then there are those who, as preposterous as this sounds, truly believe our Premier and her caucus have plans to take the money and run.
None of this is true which tells me we have some very misinformed Albertans. Worse still, they don’t seem to want to be informed, which means changing their minds at this point is impossible. It’s very sad. Meanwhile, many who want to go ahead with an APP feel our fellow Albertans are holding us back. But are they really? Perhaps all we need to do is explore another way of getting things done.
I have an idea…
When it comes to APP verses CPP, why does it have to be either/or? Why can’t we, as individuals, be free to choose which one we prefer? Though it’s likely to take a little extra paperwork, it is doable, and here is one way it could play out.
Come tax time, Albertans who want to opt-in to an Alberta Pension Plan could indicate that on a separate form and submit it with their tax return. On that form would be a line item that states what his/her total CPP Contributions would be up to the end of that year. The information is findable and accountants will be happy to make a little extra money retrieving that data for us.
These opt-in forms would be collected by the CRA. A duplicate form would also be sent to the provincial government. Come August, those who opted-in will receive an email from the provincial government to set up their Alberta Pension Plan account. Alternatively, they could do it over the phone, or perhaps at the local Provincial Building. Once that account is set up, beginning January 1st of the upcoming year, Albertans who opted-in will see APP contributions come off their paychecks rather than CPP contributions. Albertans who did not go through the process won’t.
Once complete, our provincial government will know exactly who is participating in the Alberta Pension Plan. They will also know the total amount of CPP contributions attributed to those Albertans to date. Given the CPP Investment Board likes to boast annual returns of 10%, those returns will be added to that total amount. This calculation will be passed along to the federal government so they know how much to transfer over.
This is a total win-win. Those who want to make the switch can, while those who don’t can stay where they are. Even if 30% of our working population transfer to an APP, there are still great benefits. Here are the first three that come to mind.
1. Confidence in our APP investment will be twofold. The first is local control over who is controlling our pension money. The second is the opportunity to better control what our contributions are being invested in. By investing predominantly locally we’re investing in Albertans.
2. We will have a real time example of ‘less is more’. The math has already been done with two possible outcomes. We can either contribute less to our APP than we would to the CPP and still receive the same payout upon retirement. Or, we can contribute the same amount and receive more from the APP than we would have from the CPP upon retirement. There is no downside here.
3. Just as the CPP is ‘portable’ the APP will be as well. Some of us grow tired of winter weather and decide to take up residence elsewhere. Just as tax treaties allow for Canadians to collect their CPP while living in other countries, or Quebecers collect their QPP while living in other provinces, Albertans can expect the same.
Sometimes all that is needed are a few brave folks to take that first step, and that’s understandable. Fear of the unknown can be quite powerful and there are always hiccups along the way. For example, a possible fight with the federal government to transfer our CPP money to the APP. However, once the ‘early adopters’ pave a path and help work out the bugs, it won’t be long before others see the benefits and follow. As that happens, the transfer process described already can be repeated over and over as more and more make the switch.
Obviously, the more participants, the more robust the APP will be. But patience is a virtue worth exercising. Especially when it comes to people’s retirement. Going this route has an even greater benefit. As we begin to share with our family, friends, and colleagues how well the APP has worked out for us, the pension debate will become moot. As peoples’ defenses come down, so will the ‘hands off my CPP’ signs. Before long we’ll have to find something else to argue about, like policing…