Friday, January 6, 2023

Simple solutions to complex problems

This is Joseph. 

This tweet of plans by the premier of Alberta is alarming. In the video linked in the tweet, she points out that running a province-specific pension plan would save $6 billion and free up money for things like a provincial police report. This is matched by reporting from within Alberta. Nor is this argument absent from the media, so I think we need to take it seriously as at least a proposal. It is also not the first time that it has been raised as a part of Alberta politics, previously with a focus on repatriating the Alberta share of the assets

Now this is complicated for a few reasons. One is that Alberta is a younger province (mean age 39 years as opposed to BC at 43 years). But one the other side you have Saskatchewan at 39.4 years of age. Now let me look at the average temperature for some of the cities in these provinces for January:

    Vancouver, BC     4ºC/39ºF
    Calgary, AB       -4°C/25°F
    Saskatoon, SK     -9°C/15°F
    Edmonton, AB      -11°C/12°F

Can anyone imagine why the province of BC might be older than the provinces of AB, SK, and MB (the 3 prairie provinces, of which MB is the coldest)? Note that BC is just next to AB, so it is a short trip for retirees who want to maintain some connection and it is expensive, but not necessarily outside of the big cities. 

So the very first problem is that many retirees in other provinces may have contributed while working in Alberta and later moved to a less cold climate. It seems unlikely that it will be easy to just remove this money from the CPP without other provinces, who will need to increase payments to make up the new deficit, asking hard questions --like what do you do with somebody who worked their entire career in Alberta but now lives in British Columbia? 

Now it is true that Quebec has done this from inception. But from inception makes it a lot easier as there are rules as to what to do with persons who have paid into both the CPP and the QPP. Since they are applied on an ongoing basis, there is no need to go back and adjudicate complicated cases. 

So what is the point of all of this discussion? When somebody suggests a simple solution that solves a ton of issues it is worth looking very carefully at the moving parts. It is a possible solution but it is not a simple one. It requires building a government pension agency (with huge assets under management) from scratch (not a slow ramp-up) and a complex set of negotiations with other provinces as to how ti interact. There is a great explainer here. But note this section:
Proponents of Alberta’s withdrawal from CPP have suggested that Alberta could persuade the federal and other provincial governments to strike a better deal than what would result from the legal requirements outlined above for transferring assets and liabilities.  This would require an amendment to the CPP legislation and that would require the agreement of 2/3 of the provinces representing 2/3 of the population and the federal governmental.  It is unlikely that the provinces or the federal government would agree to make a better deal for a province leaving the CPP.
Just to be even more blunt, if leaving the CPP was a way to raise revenue with a much better deal, there will very quickly be a bunch of provincial pension plans and a couple of provinces in a new plan that is in crisis. You need a very large super-majority of provinces and the federal government to be very, very naïve for this plan to have a chance of working. So the Federal government can do it by themselves, so can Ontario, and so can the four maritime provinces (which, given their age structure, would be the biggest losers of this plan).

Also worth noting is the issue of mobility. I know that part of the Alberta sovereignty movement is about restricting movement, so maybe this is a feature, but there are a lot of complex rules that need to be considered. The benefit of getting back money for non-pension priorities suggests that this is about shifting money out of pension plans to improve the fiscal outlook. But, long term, that is either another tax increase or another benefit cut, barring some sort of increased efficiency.

Not so simple once you look at it, is it? 

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