In late 2019, Jason Kenney announced the creation of an expert panel to review the possibility of pulling Albertans out of the Canada Pension Plan, and going it on their own. With tensions flaring in Saskatchewan, could we be going down the same track? In doing a little research, I’ve found that any province can exit the CPP as long as they: 1) give 3 years written notice; 2) set up comparable pension legislation and rules; and 3) assume all obligations and liabilities of the CPP. Seems simple, right? In my former life as a consultant actuary, I had the opportunity to work with some amazing Saskatchewan clients on a variety of complex pension issues. Some of which, involved the complete overhaul of their pension programs. Based on my experience, I would add a few considerations for a province to think about in deciding “yay” or “nay” on pulling their province out of the current CPP: • Retrospective vs. Prospective – Should a new provincial CPP program be on a go-forward basis only (i.e. include only future service) or should it include both past and future service? From 3) above, it would suggest that it would include both past and future service, and that assets would need to be transferred from the current CPP to a new provincial CPP. Assuming this is the case, such transfers can be a tricky feat, especially in agreeing on a set of “reasonable” assumptions to use. There are an array of assumptions that need to be made in these types of situations, but it really boils down to interest rates and mortality rates. Being a little off on either of these can be a deal breaker. Just look what happened to the majority of defined benefit plans in Canada over the past 10 years. • Provincial Demographics – Demographics can play a key role in costs of a pension program. For example, the older the average age of a program, the higher the annual cost will be. Similarly, the higher the percentage of females, the higher the cost as they are expected to live longer than males (my wife reminds me of this!). In a program like the CPP, there is always one group subsidizing another. So removing one province from the national group, could potentially sway the costs upwards or downwards quite rapidly for other provinces depending on the demographic assumptions and statistics. • Interprovincial Integration – What would happen to someone who has worked in multiple provinces and has accumulated CPP service in both the national CPP and a provincial CPP program in the past? Would they get a benefit in both programs? What about someone who currently works in multiple provinces (some with their own CPP program, and others participating in the national CPP program), what would the coordination or integration of CPP benefits look like? Integrating multiple defined benefit plans would be difficult to manage and understand for employees. • Independence – Any new provincial CPP would need to be arms length from government to avoid any conflicts of interest or political influence. This would include governance structure, administration and investment. Setting up investment and administration programs can be a costly endeavour. Yes, Quebec has their own CPP system, but they set it up roughly at the same time the national CPP was put in place, therefore, avoiding all these considerations. There is no doubt provinces could set up their own CPP, but it seems like a lot of effort for something that is already working. Lesson of the day: Pensions and politics do not go well together. Troy Troy Milnthorp is a Fellow of the Society of Actuaries, Senior Managing Director of Corporate Fund Services at Saskatchewan Teachers' Federation, and Volunteer Content Creator for CPBI Saskatchewan. CLICK HERE to learn more about CPBI Saskatchewan! |