Former mayor advocates for CPP at SACPA session

By Al Beeber - Lethbridge Herald on June 6, 2024.

Herald photo by Al Beeber David Carpenter gives an indepth talk about the Canada Pension Plan and the Alberta government's interest in creating its own to a packed house at the Southern Alberta Council on Public Affairs on Wednesday.

LETHBRIDGE HERALDabeeber@lethbridgeherald.com

A packed audience at the Southern Alberta Council on Public Affairs Wednesday had plenty to chew on during a lunchtime discussion by former mayor David Carpenter on the Canada Pension Plan and the Alberta government’s interest in starting its own.

Carpenter was blunt in his half-hour talk about the UCP’s claimed Alberta stake in the CPP, the viability of an Alberta plan and whether he believes premier Danielle Smith would actually respect voters if they rejected an Alberta Pension Plan in a referendum.

In fact, Carpenter who has studied the matter extensively and written about it on the Opinion pages of The Herald, stated bluntly that a referendum would be a “sham,” with Smith having no obligation under provincial legislation to abide by a referendum’s result.

Carpenter told a rapt audience that if Smith declares such a referendum non-binding she would then be obligated to proceed with “the confiscation” of Albertans’ assets in the CPP for an Alberta plan.

During his talk, the talked about how the CPP is considered to be No. 1 of the top nine big Canadian pension managers, outperforming AIMCo – the Alberta Investment Management Corporation.

The CPP’s management expense ratio (MER) for the CPP is .97 per cent compared to .63 per cent for AIMCo, he said.

Over 10 years, after payment of MER costs CPP had a 9.2 per cent compound rate of return which was the best of all pension plans in the top 9 while AIMCo had a return of 7.2 per cent which was the rate performance in the Top 9.

“The difference over the life of the plan would be hundreds and hundreds of billions of dollars which would be forfeited if we left CPP for an APP,” Carpenter stated.

“The only rational plan is to not leave the CPP where their pension funds will be managed with stability for the next 75 years as certified by The Chief Actuary of Canada who signed the report with her real name less than two years ago,” Carpenter told the audience.

A public pension fund, Carpenter explained, “is a defined benefit social program governed by legislation which creates an enforceable promise of pension income to eligible retirees.”

In a pay-as-you-go plan “the current generation of workers pays the pension of the previous generation, and a funded plan collects premiums from current workers under a pre-determined formula and premiums are invested and held in a pension fund trust for the sole benefit of individual plan members.

“A PAYG plan has a benefit in that it can be instituted immediately to start paying pensions when needed but has several risks such as political whimsy, demographics and a lac of a solid funding base,” he said.

In contrast, “a funded pension plan collects premiums from current workers under a pre-determined formula and the premiums are invested and held in a pension fund trust for the sole benefit of individual plan members who are the beneficiaries. The trustees of a pension fund trust carry a fiduciary responsibility to make investment decisions in the sole interests of the security of pension payments to beneficiaries.”

The assets in a pension fund don’t belong to the government, he said, nor are they to be used for the benefit of citizens generally with funds to be used only for beneficiaries in accordance with their individual interests, he said.

“Governments are not a beneficiary and have no interest in the funds, except as a trustee to manage them.”

Carpenter, who told the crowd he was doing his first public speaking in 25 years, said “the promise is the bedrock of all pensions” with the pension promise for the CPP contained in federal legislation that can’t be reduced or amended without an act of Parliament, and concurrence of two-thirds of participating provinces representing not less than two-thirds of the population.”

An Alberta plan is contained in Alberta legislation “which cannot be reduced or amended unless approved by a show of hands at UCP caucus,” he said to laughs.

Governments aren’t a beneficiary and have no interest in pension funds except as a trustee to manage them, he said.

He told the crowd that the CPP started out as a PAYG plan but was “substantially amended for stability in 1997” and can now be considered a hybrid with $1 in assets backing up every $3 in liability according to the 2021 actuarial report.

When the CPP was started, the birth rate was high and cash flow was positive. In 1965 when the CPP was created, almost 40 per cent of seniors were living on incomes much below the poverty line, Carpenter said, with the percentage much greater for those living alone. This poverty among seniors was the catalyst for he plan, he said, with Old Age Security only amounting to $40 per month. The plan came into effect on Jan. 1, 1966.

“So, as constitutional authority for pensions is shared, CPP was initiated and has been jointly governed by the federal and provincial governments since inception, he said.

Alberta has always been a partner in its governance so the UCP knows – or should know – all the important details of the CPP and would have no excuse for not sharing correct information with Albertans, he said.

“They do know that all contributions to CPP are made by, or on behalf of specific individuals” in this province or any other jurisdiction in Canada and the UCP government has no claim on the CPP funds other than as a trustee to manage them for the benefit of retired workers, Carpenter added.

Revenue originally consisted of premiums collected on behalf of workers and expenditures were payments to retirees with any surplus funds loaned back to the provinces he said.

“It was in this environment that the asset sharing formula on provincial withdrawal used by LifeWorks was developed. It was intended to allocate to the withdrawing province their share of a negligible asset balance and to require them to assume a direct provincial responsibility for their share of the huge unfunded liability, he added.

Carpenter sarcastically said at the time of the CPP’s creation medical science “had not advanced to the point where it was possible to assess the mental competency of a premier who solely on the basis of an extreme personal dislike for a politician of an opposing party would withdraw their province from a fund and assume a direct provincial liability for what is currently three times the assets to be acquired.”

In 1967, there were seven workers per retiree but now there are almost three, Carpenter noted.

With birth changes in birth rates developing in the late 1960s, actuarial calculations later confirmed the CPP would be unable to collect sufficient premiums, pay benefits in the long run unless significant plan amendments were made.

By 1997, the unfunded liability was up to $428 billion with assets only being 7.8 per cent of the total liabilities and Carpenter isn’t certain that the majority of those assets weren’t provincial IOUs, he said.

Contribution rates were increased and the CPP investment board was created. The provinces and Ottawa made hard decisions at that time, Carpenter said and the latest actuarial report from 2021 showed the unfunded liability was $1.1 trillion but the assets totalled 33.5 per cent of that liability, up from 7.8 per cent in 1997.

“The bottom line is that the joint federal/provincial stewardship is going in the right direction” and more importantly the hybrid plan has reached a steady funding basis so that the actuaries can certify that the CPP is stable for the next 75 years, he said.

Carpenter said there is no credence to the UCP’s claim it is entitled to 53 per cent of CPP assets – $334 billion on withdrawal, according to a document created by Lifeworks on an APP, the UCP using that number to fund their promises, Carpenter said “that is misleading at best and likely disingenuous.”

The Lifeworks report actually said a literal reading of the CPP Act would allow Alberta 117 per cent of CPP’s base assets, Carpenter asserted.

“The report’s author, after allowing that their reading resulted in an unrealistically large transfer, proposed a change in legislative wording which resulted in the 53% number. Many times I have wished that I could change the Income Tax Act as I filed my returns but life does not work that way,” he said.

Carpenter said the CPP’s investment success isn’t accidental. For the period ending March 2024, indicate total assets of $632 billion and that CPP Investments had contributed $432 billion of that – 68 per cent from investments.

Lifeworks’ report also glossed over pension liability, he added, which “at last actuarial evaluation was three times the value of the assets, and which must be directly assumed as a provincial debt upon separating from CPP.”

And he noted a ministerial memo before Lifeworks’ report was created stated the value of assets Alberta would be allowed to access would be around 15.1 per cent of the CPP – about 30 per cent of the number the UCP has floated.

Carpenter said estimates suggest that when each Canadian’s pension matures, at least 80 per cent of each payment will be from investment earnings.

“Investment management is the single most important facet with pension liability, he added.

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