Chart of the Day (CotD) Alberta Pension Plan Proposed (Part 2), by Eldric Vero

This presentation is Part II of the Alberta Pension Plan Proposed based on the August 2023 Report from LifeWorks entitled “Alberta Pension Plan – Analysis of Cost, Benefits, Risks and Considerations”.  Here is the link to the report :  https://open.alberta.ca/publications/app-analysis-lifeworks-report#summary plus the September 24, 2023 CotD https://eldric.substack.com/p/chart-of-the-day-cotd-alberta-pension.

Panel 1

The author has only considered the data presented within the August 2023 LifeWorks Report (the Report) at this time.  The data to create the following graph was extracted from the Report Appendix B in Table B.1.a –  Historical Base CPP and Alberta contributions, benefits, operating expenses and rates of return.  This is a graphical presentation of the Alberta portion of CPP Contributions and Benefits (cumulative) to 2021.  As per the data set, Albertans have contributed $164 Billion while receiving $104 Billion in benefits.  This disparity is in the order of $60 Billion to the end of year 2021.  The author has included a 5-year Forecast to year 2026 assuming the APP is up and running by 2027 as per the Report.  Note the continued digression in the contributions and benefits resulting in a cumulative difference of $70 Billion by 2027.  This vast difference must be reconciled and addressed on behalf of Albertans.

 

Panel 2

The following Panels are model constructs of the author which Forecasts Total Assets and Growth utilizing three Contribution Rates and Yields on investments.  The “Pay-as-you-go Rate” (i.e. Benefits) and Operating Expenses are as presented in Table C.1.1 (see Appendix C).   This first graph utilizes a minimum Contribution Rate of 5.91 percent as per Table C.1.2 in the Report.  In this scenario, one observes the 4% and 5% Investment Yield curves are bending down indicating a shortfall in Contributions resulting in erosion of capital assets. It appears that a minimum Yield on Investment is 6% which may require a portion of the Investments in a higher risk bracket.

 

Panel 3

This Forecast assumes a Contribution Rate of 9.9 percent (i.e. no change to existing CPP rates).  There is some minor erosion of capital at the 4% Yield, however, this is likely manageable in the very long term.

 

Panel 4

This Forecast assumes a Contribution Rate of 7.5 percent (the author’s best case scenario)  Again, there is some minor erosion of capital at the 5% Yield, however, this is likely manageable in the very long term.

 

“Statistics is the grammar of science” Karl Pearson