Editorial: Why leaving a global standard-bearer like CPP invites risk
Alberta threatening to leave the Canada Pension Plan is the province taking its proverbial ball and going home, forgetting it’s less fun to play alone and more formidable to have strength in numbers (teammates). It also grates against Canada’s collective national pride.
CPP is a global leader in its field, so why leave? A 2024 report by Global SWF, a New York-based pension industry specialist, measured 10-year returns for sovereign wealth funds and public pension funds between 2013 and 2022.1 CPP ranked first among national pension funds for annualized rate of return.
But while media reports have suggested the majority of Albertans are against leaving,2 divisions between the prairie province and the rest of Canada are not a secret. A survey by Angus Reid Institute3 asked residents of each province whether they felt fairly treated by the national government. Alberta, at 36%, had the worst score. It also asked people whether they thought their province contributed more to the country than it got back. Unsurprisingly, given the revenue generated by the oil and gas industry, Alberta scored highest with a whopping 86% ticking ‘yes’.
Is that fair? Does it warrant this proposed pension protectionism? Arguments will rage, but in an industry in which planning ahead equates to generations, leaving a global standard-bearer like CPP invites risk.
Even if it got the amount the province claims it will be owed if it leaves (53% or $334 billion of assets) – the CPP Investment Board calculates Alberta’s contribution to be 16% – there are a number of future scenarios that need to be considered. Mainly, that nothing stays the same.
While the oil and gas industry is thriving right now, there is an undeniable long-term shift to renewables. Will it be able to adapt? Will it always be able to rely so heavily on this income? It’s also a young province demographically, but this may change. If the age profile increases, that raises the prospect of higher contribution rates for residents.
There is no denying that Alberta leaving would hurt CPP from an economies of scale perspective. But the province would also start with a relatively small pot. Greater scale allows for better diversification across asset classes and geography, to name just two.
I understand proponents want a return more commensurate with the share of revenue Alberta sends to Ottawa. But while not blessed with the same natural resources, Quebec’s Caisse de dépôt et placement (CDPQ) offers warning signs. While CPP had a 10 percent annualized net return on investments of $570 billion over the 10 years up to March 31, 2023, Quebec’s pension fund’s returned 8 per cent – 20 percent less.4
Surely, over the long term, looking generations down the line, we will be a stronger and more robust nation with a combined CPP, a fund that will benefit all Canadians, including Albertans.
