Freeland tells Premier Smith leaving CPP would be ‘historic, costly, irreversible mistake’

Finance Minister Chrystia Freeland has written to Alberta Premier Danielle Smith explaining why she thinks the idea of pulling the province out of the Canada Pension Plan is based on bad math.

In a letter sent to Smith on Wednesday, Freeland said that while the province has the right to pull out of the CPP and create its own pension plan, Albertans should first consider the negative consequences of such a move.

Freeland pointed out that the CPP has a long track record of providing a “strong and consistent level of return” on pension investments.

“Over the past twenty years, CPP Investments has grown the CPP’s assets from $36 billion to more than $570 billion, of which about $380 billion was generated from investment income,” Freeland wrote.

Freeland, who grew up in Alberta, said that over a ten-year period, the CPP earned a rate of return of almost 10 per cent, “the highest ten-year returns of any pension fund in the world.”

Last month, Smith released a long-awaited report by consultant LifeWorks. It claims that if Alberta pulled out of the CPP, it would be entitled to $334 billion — more than half of the fund’s assets.

Smith has been calling for Alberta to leave the CPP for a long time. She told reporters after the release of the LifeWorks report that “an Alberta pension plan would be fairer and could make life more affordable for all Albertans.”

Watch: Freeland on Friday’s meeting with provincial finance ministers:

Horner vs. Freeland on pension math

Freeland said the claim that a separate Alberta pension fund would require lower pension contributions is “based upon a flawed analysis of the share of CPP assets that Alberta would be entitled to.”

“If every province and territory used the same exit formula relied on by your government, Alberta, Ontario and British Columbia would alone be entitled to an estimated 128 per cent of CPP assets,” she wrote. 

If Alberta were to withdraw from the CPP, Freeland wrote, Albertans’ retirements would be put at risk.

“While Alberta has a right to withdraw should it so choose, Albertans deserve to know that doing so would be an historic, costly and irreversible mistake,” she said.

Freeland sent the letter in advance of Friday’s virtual meeting between herself and her provincial and territorial counterparts. The meeting was requested by Ontario Finance Minister Peter Bethlenfalvy. 

Alberta Finance Minister Nate Horner wrote his own letter Wednesday, challenging Freeland’s math and demanding that she reveal her office’s calculations on how much of the CPP’s assets Alberta would get in advance of Friday’s meeting.

“We acknowledge the LifeWorks calculations rely on publicly available data, and we expect that the federal government has access to non-public data sources that could impact the calculation of the asset transfer amount,” he said. 

“For this reason, we request that you provide your calculation of the asset transfer amount (together with the underlying data supporting the calculation).”

Challenging the numbers

Critics have ripped into the math underlying the conclusions in the LifeWorks report.

Michel Leduc is senior managing director of the non-partisan Canada Pension Plan Investment Board, which manages the fund’s assets for Canadians. He immediately dismissed the $334 billion claim as an “impossible figure.”

University of Calgary economist Trevor Tombe published a paper estimating that Alberta is entitled only to about 20 to 25 per cent of the fund.

“I think it was a little problematic that the government’s hanging its hat on half the CPP assets, which you think is kind of transparently unreasonable and not going to fly anywhere else in the country,” he said.

A 2019 briefing note from Alberta’s Finance Department to Travis Toews, who served as finance minister to both Smith and former premier Jason Kenney, estimated Alberta’s slice of CPP assets at less than 12 per cent.

Alberta has floated the idea of holding a referendum on withdrawing from the CPP as early as 2025, but Smith said the question of how much Alberta would get needs to be settled first.

According to the first major poll conducted since Smith began making the pitch to take Alberta out of the CPP, the proposal is widely opposed by Albertans.

Fifty-two per cent of Albertans polled by Abacus Data said they think it’s a bad or very bad idea, compared to 19 per cent who think it’s a good or very good one, and 15 per cent who are in the middle.

The few who support it are overwhelmingly younger Albertans — those farthest away from receiving pensions who are therefore less vulnerable to dramatic changes to the retirement fund.