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CPPIB an unlikely option for investment manager of potential Alberta pension plan: briefing note

Published Jan 19, 2024  •  Last updated 4 hours ago  •  3 minute read

A briefing note from civil servants to federal Finance Minister Chrystia Freeland noted approval from multiple provincial governments, as well as from the federal government itself, would be needed for CPPIB to manage an Alberta plan. Photo by Adrian Wyld /The Canadian Press

The cheapest option to manage the investments of a potential Alberta pension plan is likely off the table, according to a federal briefing note, which cites the difficulty of gaining the needed support from other senior-level governments.

Alberta’s pension plan report, prepared by LifeWorks and released on Sept. 21, 2023 ↗, outlined four options for an investment manager of an Alberta plan: the Canada Pension Plan Investment Board (CPPIB), the Alberta Investment Management Corporation (AIMCo), a new Alberta-based provider, or a private-sector provider.

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Depending on which option is selected, the implementation costs for setting up the investment management structure of a new Alberta plan would range from $75 million to $1.2 billion, with the CPPIB presented in the report as the least costly choice.

“The lower end assumes that an APP leverages an investment manager with the size and expertise to manage the plan, whereas the high end assumes a new APP investment manager with the size and expertise to replicate the CPPIB is implemented,” the report reads.

That cost would be in addition to non-investment setup costs the report estimates would range between $100 million and $1 billion.

A briefing note from civil servants to federal Finance Minister Chrystia Freeland noted approval from multiple provincial governments, as well as from the federal government itself, would be needed for CPPIB to manage an Alberta plan.

“Utilizing the CPPIB would necessitate a change in mandate under the CPPIB legislation, requiring the formal approval of seven out of ten provinces representing at least two-thirds of the population,” it reads, reflecting language found in the Canada Pension Plan Act ↗.

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The note was obtained by Postmedia through an access to information request.

Other provinces have no way to prevent Alberta from leaving the CPP, but Mount Royal University political scientist Duane Bratt says the amending formula does give them leverage over the possible future use of the CPPIB.

“They can’t stop Alberta from leaving but they would be really upset with Alberta leaving because regardless of how many assets it took, even if it took 16 per cent of the assets, you’re shrinking the contribution pool and we know that’s important for a pension,” he said.

Bratt described the seven-out-of-10 standard as “a pretty high bar.”

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The two-thirds of the population requirement also gives an effective veto to Ontario, home to nearly 40 per cent of Canadians, and whose government has spoken out against Alberta ↗ leaving the CPP, and whose civil servants have highlighted issues they see with the LifeWorks report ↗.

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Quebec would also be included in the formula, as per the CPP Act, despite having its own provincial pension plan after not joining the CPP when it was first established in 1965.

Along with the report, Premier Danielle Smith has mused about potentially using the CPPIB as an investment manager, telling the audience of her Corus radio show on Oct. 14, 2023 that, “there is also an option that we would keep it with the CPPIB, and just have it segregated off with a different management board. That’s another way of doing it.”

In announcing the report last September, Finance Minister Nate Horner noted LifeWorks made no recommendation on which investment managing option to select, adding “more research needs to be done on this to explore all the options.”

Using AIMCo as investment manager would be the next most cost-efficient option, though the authors of the briefing note argue the CPPIB option is being floated in response to possible apprehension toward using AIMCo.

“This recognizes that there are concerns that a separate investment manager in Alberta could be subject to political interference or pressure to invest mostly in the Alberta economy, thereby exposing the Alberta plan to greater investment risk.”

Premier Danielle Smith said the pension question would not be put to a referendum until a “hard number” ↗ is agreed on. The federal government has tasked the Office of the Chief Actuary (OCA) to provide that number, though a timeline for when it will be completed and published ↗ has not been determined.

In December, Alberta paused its pension plan engagement sessions ↗ until the OCA reports back.

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James Mackreides
James Mackreides
'Mac' is a short tempered former helicopter pilot , now a writer based in Sofia, Bulgaria. Loves dogs, the outdoors and staying far away from the ocean.

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