Jason Kenney’s UCP government recently wrested control of about $78.5 billion in pension assets from working Albertans, and is musing aloud about using it to prop up Alberta oil and gas companies. What’s behind this outrageous pension grab? What is AIMCo going to do with this cash? How did we get into a situation where people’s deferred wages (pensions) create these vast pools of capital that can be used against workers?
[Tyler mentions that the CPP is fully funded, it is currently funded on a “steady-state” basis (pay-as-you-go with a reserve fund). The CPP enhancement which raises the replacement rate from 25% to 33.33% (phased in by 2025) will be fully funded.]
Kate: Whatever. I can’t pronounce anything.
Joel: That’s what gives the podcast its charm.
Tyler: Yeah. We love it.
Kate: Hello, and welcome to the Alberta Advantage. I am your host, Kate Jacobson, and today we are discussing Jason Kenney’s great Albertan pension robbery and his weird plans to get Alberta out of the Canadian Pension Plan, and how weird pension funds honestly are in general.
Comprising Team Advantage today are Joel-
Joel: Hello, hello.
Kate: – and Tyler.
Tyler: Hello, everyone.
Kate: So as you may have heard from watching a television program that comes on sometimes in the evenings called “the news,” pensions have been in the news a lot lately, and mostly the ways in which Jason Kenney is trying to fuck with them.
So Bill 22, which was an omnibus bill passed in the Alberta legislature by Kenney’s UCP government on November 21, 2019, really did a number of things, and one of the things that omnibus bill did was that they transferred all public-sector pension plans under the management of the Alberta Investment Management Corporation – and hereafter we will be referring to it as AIMCo, which is also how you will see it referred to in the press – and this is a transfer of about $18 billion in assets from the Alberta Teachers’ Retirement Fund – hereafter we’re going to call it the ATRF – to AIMCo, and there are about 82,000 teachers and retired educators that are enrolled in the plan.
Joel: It also includes the Local Authorities Pension Plan – LAPP – which is Alberta’s largest pension plan, covering municipal employees, health workers, and more. It has a value of $45 billion. It includes the Special Forces Pension Plan, which has a value of $3 billion, and the Public Service Pension Plan, which has a value of $13 billion.
Tyler: These last three pension funds, of which there are 351,000 Albertans enrolled, have been given a joint-governance structure by the previous NDP government, which took several years to actually arrange, and the provincial government under the PCs had actually promised this joint governance as far back as 1992.
Kate: And this is just, to me, like, a perfect summary of Alberta politics, which is the NDP, in a very half-assed way, fulfilling a promise of, like, Don Getty, like, 25 years after it was promised. Very tragic state of affairs.
Joel: So the joint governance would have given employee and employer groups control of investment and retirement plan design and responsibility, whereas previously, basically the government had final approval on any changes to the pension plans, including their benefits.
Luckily, none of that joint governance is going to happen now, so it’s just AIMCo having final say again. The AIMCo board, by the way, is appointed by Alberta’s finance minister and executive council.
Kate: And I kind of want to point out that the only reason that, as a government, you wouldn’t be okay with there being a joint-governance plan for pensions is if you wanted to do something with the money invested in those pension plans that you thought you could not get public-sector unions to agree to, so it really suggests that Kenney’s UCP government has some shady or not very worker-friendly plans for these pension funds.
Joel: In total, that’s about $78.5 million in assets that the government has just grabbed and put under control of a Crown corporation that it itself administers, potentially affecting 423,000 people who are enrolled in those plans. Absolutely no consultation occurred for it.
Tyler: And Jason Kenney has also suggested that Alberta should withdraw from the Canadian Pension Plan and have Alberta administer its own pension plan. He stated that $40 billion of the $409 billion in funds administered by the Canada Pension Plan Investment Board – CPPIB – should be transferred to Alberta. This is likely impossible to do and is probably just a big political spectacle meant to have a fight with Ottawa to distract from Kenney’s ongoing assault on working Albertans. But it does illustrate how much Kenney wants to go after these giant pots of money that are supposed to be managed responsibly to allow people to retire comfortably. Think of that.
Joel: And right here, I just want to play a brief clip of Danielle Smith talking about these issues on CBC, because it is quite unhinged, and kind of-
Joel: – illuminating. It reveals, perhaps, what is going on. So we’ll just play that clip here.
Voice: I don’t know, if I was an Albertan, that I would be comfortable with the government taking over the investment decisions. It depends on how arm’s-length this agency is. But I don’t want – I wouldn’t want a lot of my money tied up, say, in oil and gas. Not for any moral reasons, necessarily – just because I think it’s a bad bet economically. Again, I’m not an Albertan, but I’m sensing, in some of the coverage, that there’s a bit of anxiety, nervousness about this move by Mr. Kenney.
- Smith: And if I may, I think that’s part of the reason why Albertans are looking at having their own Alberta pension plan – because they know that there’s a divestment move of all of the pension funds across Canada and internationally, and if CPP starts bailing out of energy resources, we don’t want to be in a position where our money is being used to support solar and wind or other experiments that the CPP get driven politically by – a Trudeau government might want to invest in. So I think that this is going to be the bigger conversation over the next year or two.
Kate: This makes me want to do things that I cannot say on the podcast.
Joel: [laughs] So Danielle Smith was the latter voice in that exchange. Yeah, like, there are a lot of things I love about it. Danielle Smith speaking on behalf of all Albertans is a personal favorite, but as a close second, I really enjoyed the bit about, you know, experiments in wind and solar that are … [laughs]
Tyler: I like the big experiment that is oil and gas, which we have fundamentally seen the results of, and that experiment-
Joel: It’s doing – yeah. That experiment is doing wonders for the atmosphere.
Kate: So my personal favorite bit of that exchange is where Danielle Smith just flat-out admits that what the government is intending to do is to steal the deferred wages of working-class people in Alberta who have won pensions through collective struggle and use it to prop up failing oil and gas companies that everyone else in the world is disinvesting from, so that Suncor and CNRL can do share buybacks and give kickbacks to, like, fossil fuel CEOs. I actually like that. It’s cool to me.
Tyler: [laughs] The other thing, too, that I love about that, is in the scenario that she’s positing where basically all investment is pulled out of the oil sands from all the big institutional investors, that the money that we would actually be able to allocate would somehow be enough to save it, which is just so fundamentally not true you may as well just set all that money on fire and say, “Sorry, everyone, pensions are canceled. No one’s retiring ever again.”
Kate: These people are eating from the trashcan of ideology.
Joel: Yeah. When an international financial community withdraws its funding of a particular industry, it’s probably not a useful investment to be like, “Wait, I’ll just put all my money on this one. I’m sure it can beat the market.”
Tyler: [laughs] Yeah.
Joel: Reacting to this, we have the Alberta Teachers’ Association President Jason Schilling referred to the whole affair as a “hijacking” and stated that the ATRF has performed well over the last 80 years, in some cases performing even better than AIMCo.
Greg Meeker, former chairman of the teachers’ pension board, said that “We’re really worried that they’re going to treat these huge pools of retirement savings … as monopoly money that they can play with to support some agenda that they haven’t articulated to the public but that might include making risky investments in what most people see as a sunset industry.”
Kate: And I’ve said this, but I’m going to say it again, and I really want to hammer this point home: Pensions are deferred wages. It is income that workers did not get to take as wages when they earned it, but instead agreed to take it later as a pension to provide for them in their retirement. When you are taking people’s pensions, you are stealing from them. You are stealing their wages that they earned.
Tyler: It’s also really a great thought experiment to imagine what would’ve happened if, let’s say the NDP had seized control of $78.5 billion in assets from – I don’t know – a few billionaires, and suggested that maybe they’d like to invest in solar or wind farms or geothermal and maybe even antifa super-soldier serum. Where is it? Come on, Rachel.
Joel: I would love to see – can you imagine the kind of antifa super-soldier serum you could manufacture with that kind of financial backing?
Tyler: Oh, man. It’d be – yeah, Captain America shit.
Tyler: The good shit.
Joel: Uh, well, I mean, the short answer is that everyone would’ve, like, set their hair on fire and said, “Oh, my God, the commies are coming,” right?
Tyler: Yeah. Yeah.
Kate: This is exactly like Soviet Russia.
Joel: Yeah. So, what explains all this? What’s going on here? Well, if you do a little digging, you’ll find that back in 2017, Jason Kenney, who was running for the leadership of the United Conservative Party, answered a questionnaire given to him by the Canadian Taxpayers Federation. The Canadian Taxpayers Federation, you may recall, is an astroturf organization that only has six members, and Jason Kenney was their president and CEO in the 1990s before he got elected as a Reform Party member of Parliament.
So he, of course, answered their questionnaire, and he said a lot of awful Kenney-like things, and one thing that sticks out is this quote – quote – “Reforming public-sector pensions for future beneficiaries will also be required to manage huge unfunded liabilities” – end quote. This basically means that Kenney wants to implement a two-tier pension plan. Two-tier pension plans – Tyler, can you explain what those are?
Tyler: Yeah. So really, there’s two main types of pension plans. So there is a defined-benefit-style pension plan that you may be familiar with if you’re very lucky. There are also many, many defined-contribution pension plans. Let’s really quickly, I think, go over what those two plans are, because I think they’ll be pretty important going forward in this episode.
So defined-benefit pension plan is where the thing that is totally set in stone is the end result: what you are going to get paid in retirement. That is usually done through some sort of a calculation that involves years of service, average salary in your last year of work – those types of things. And as a part of your employment contract in joining one of these plans, your employer or the government will say, “When you retire, we’ll do this formula, and we’ll tell you exactly how much you’re going to get.” So the risk is on the company or the risk is on the government to put enough money away, to invest it wisely, to make sure they have enough money to pay everyone out.
On the other hand, defined-contribution plans is when the risk is fully on the employee, where generally what happens is there will be some sort of a group investment set up where employees can put money into, and sometimes your employer, if you’re lucky, will match a certain portion of that, but the risk is now totally on you as the employee to make sure that your funds are managed well. They may be in a group fund, but if the fund manager, who you certainly don’t know, and don’t know if they’re good or bad, and definitely can’t predict how much money you’re actually going to need in retirement, so you don’t know what you actually need the value of your account to be – all that risk is now on the employee.
So by making these changes, it’s hugely beneficial to employers because they get to remove the big defined-benefit pension liabilities from their balance sheets, and hugely shitty for everyone else who has to now shift into a defined-contribution plan.
Joel: So that’s essentially what Kenney is suggesting be introduced here. Another thing that needs to be addressed regarding Kenney’s line there is that there are no significant unfunded liabilities. In particular, the LAPP fund was in surplus and is funded 104%, so it’s not like there’s a giant liability there.
Kenney then went on to have another great line – quote – “If MLAs have no pension, it is not unreasonable to suggest that future public-sector pension plans should avoid unfunded taxpayer-guaranteed liabilities.” And again – end quote. This is Kenney code for, “I want to ruin wage and pension obligation standards in the public sector, because this lowers the standard for workers across the province.”
Tyler: Yeah, and one thing I think that’s important to note, too, is a lot of places around the world, defined-benefit pension plans have declined drastically over the past decades. Most pension plans, when they were set up originally when the concept of pension plans came around, were defined-benefit. It was seen as the more humane way to actually have someone retire, because you could kind of play out your career and think, like, oh, that’s exactly what I’m going to receive in retirement. It’s very convenient and easy for me.
But that has – and especially in the private sector – just cratered. There are very few active defined-benefit plans that you can still join if you’re privately employed. In the public sector is where a lot of defined-benefit plans still exist, and even in the public sector, that’s starting to decline already.
Kate: In a sense, Kenney is right in the rhetoric that you will hear him use a lot that public-sector employees are exponentially more likely to have a defined-benefit pension plan than employees in the private sector. But I would suggest that instead of seeing this as fat-cat public-sector unions, we would see it as, employees in the public sector participate in strong unions that have won them something that is incredibly humane, incredibly good, and allows workers to retire and to live the end of their lives with dignity.
And frankly, private-sector workers would like to have defined-benefit contribution plans, maybe they should organize into unions and simply have higher rates of unionization in the public sector so they can win these and other games.
Tyler: Damn, that sounds sweet. Yeah, the last episode the three of us were on together, we talked about something called a reserve wage, and the same could be said for other benefits like pensions. The government and unions setting a very, very high level of what pension plans are is very good if you are a private worker. What you could probably think of as, hey, if we eliminated all the defined-benefit plans, government or private, and turned them all into defined-contribution, what’s going to happen? The shit’s going to roll downhill and probably private-sector workers are just going to get either, you know, no matching by their employer, or maybe no pension plans offered at all.
Joel: So the general plan, from what you’re saying, is to just make life worse for everyone, particularly in retirement.
Tyler: That seems like his goal, yeah.
Kate: And once again, this is a big pattern with the Kenney government. It is specifically an attack on public-sector workers.
Joel: So this seems pretty bad. What about AIMCo? Was it some giant evil corporation?
Tyler: Not necessarily. AIMCo manages about $115 billion of assets, and included amongst these assets is the Alberta Heritage Fund, which was established by Peter Lougheed in 1976, who was the premier from PC Party at the time. PCs put about 30% of energy revenues into this fund for about 10 years, and then in ’87 the Alberta government basically stopped and said, we’ve been using a lot of these non-renewable revenues to pay for our budget and just putting it straight into general revenues. Which seems bad.
Kate: That seems fine. It seems like there could never be any consequences from that.
Joel: Very smart.
Tyler: A thing that we love to do is save up a whole bunch of money for the future, and then spend that to fund our daily expenses.
Kate: Instead of taxing W. Brett Wilson.
Joel: Yeah. Sometimes the PCs would even use the income gain from the fund for existing programs, so they would siphon whatever additional revenues the fund was able to generate and then pluck those and put them into general revenues. Currently, the Alberta Heritage Savings Trust Fund is worth about $18 billion in this year, 2019.
Tyler: A month and a half after Kenney was elected, AIMCo acquired 85% equity of the Northern Courier pipeline from TransCanada. Their CEO was delighted to be partnering with TC Energy on this Alberta-based asset, which supports market access to billions of dollars’ worth of oil sands resources in the province.
Kate: So what is AIMCo currently invested in? If we take a look through the top-50 list of holdings for AIMCo, you can see stock held in a pretty typical stock portfolio, so you’ve got banks like TD, the Royal Bank, gold and mining, IT – things like Microsoft, IBM, HP, Apple – telecommunications like Verizon and Telus; and consumer products like Coke, Pepsi, Johnson & Johnson – that kind of stuff.
But most interestingly, there is also a not insignificant amount of stock that is invested in energy – so, $185 million in Enbridge, which is 1.75% of the portfolio; $182 million in TransCanada, which is 1.72%; $169 million – nice – in Suncor, which is 1.6%; and $97 million in CNRL, which is a little under 1%; and then about 0.9 and 0.5% in the Pembina Pipeline Corporation and the ConocoPhillips Corporation respectively.
So together these energy stocks make up about 7.4% of AIMCo’s holdings, and that’s currently not a giant exposure, but this could change, specifically with the really politically motivated direction we’ve seen the Kenney government going in with its approach to investing these pensions.
Tyler: Yeah, and I think what’s important is, right now, based on what we see and talking to some friends who would know more about these things, the spread of assets is not unlike anything you would see in any investment account or, you know, the Canada Pension Plan probably has a similar mix of assets. What is important is how does this change in the coming years? Especially once Kenney and his government have passed all the bills they want to pass right away, are we going to start seeing direction from the treasury, saying, “Hey, could we up that from, you know, 7% in energy to 10%, and how does that start comparing to other comparable investment funds?”
Joel: Yeah. So on that note, could AIMCo do something politically motivated with this giant stack of money? In early November, a column by scab Don Braid quoted government officials, suggesting that with AIMCo managing pension funds there could be a strategic advantage for Alberta development. With many lenders shunning oil and gas, AIMCo might buy more stakes in the industry. Which is insane. “Ah, I see all the big players in the international investment community are withdrawing their support for capital and energy-intensive bitumen extraction. Clearly this is an excellent time for us to sink the pensions of workers and retirees into this mess. What could go wrong?”
Kate: This is literally, like, a pension robbery. Like, Jason Kenney is literally stealing from working-class people to give to oil companies. He is a reverse Robin Hood in the dumbest, most Alberta way possible.
Tyler: Yeah, it’s really important to keep that in mind throughout all these conversations, which get very technical and investment lingo-y, but at the end of the day, this is money that you and I and everyone in Alberta has put away and they hope to get it when they’ve retired, and they’ve earned all that money, and they’ve gained some interest on it, and they want to use that money in retirement. Kenney and his government would potentially be able to put that money into a dying industry and have it all go away.
Kate: It is especially cruel because despite what the UCP government might tell you, public-sector workers are not incredibly rich and not making tons of money, so they are putting aside proportions of their not-exceptionally-generous salaries and making sacrifices in their lives here and now so they can have a good life in retirement, and that is being taken advantage of by this government and stolen from them, and I that’s incredibly disgusting.
Tyler: And I think, too, we have to be very clear here that this isn’t us just imagining a scenario that could happen in a worst-case, you know, world. This is something that is built in. So if you take a look at section 19 of the Alberta Investment Management Corporations Act, you will see that it reads, and I quote, “The Treasury Board may issue directives that must be followed by the Corporation, the board, or both.” So that basically means that the government can tell AIMCo what to do with its investments, even if it’s not a wise investment strategy. So in that previous clip, one of the commentators was saying, “Well, you know, if it’s an arm’s-length institution, then it’s probably fine.” The fact of the matter is written in the act: It is not an arm’s-length institution.
Joel: Yeah, and let’s say there was opposition from the AIMCo board being like, “Oh, we don’t want political interference in our investment decisions.” The government could just dismiss the board-
Tyler: Too bad.
Joel: – and reappoint everyone, right?
Tyler: Yeah, exactly.
Kate: Seems bad.
Joel: Quite rather bad.
Also in “the news,” this program that I’ve been watching every evening, the latest season of which I am really not a fan of-
Tyler: Get new writers. It sucks.
Joel: – have you heard of this company called Moody’s, and it gives ratings? It’s like the Oscars, but for money or something?
Tyler: [laughs] Pretty much.
Kate: Really not enjoying the introduction of this new character.
Joel: [laughs] So last year, Moody’s identified 11 sectors with a combined value of $2.2 trillion in rated debt as being in danger of a downgrade owing to concerns over carbon. In early December of this year, Moody’s downgraded Alberta’s credit rating over a weak economy reliant on oil.
Kate: And, like, we should be clear that having international traders and speculators dictate what is, like, a viable economy or what is viable in certain jurisdictions, like, really does suck. These are the exact same people that will bet against a country’s currency and pull investments the minute that any country elects a left-wing government, particularly in the Global South.
However, insofar as these are interests focused overwhelmingly on the ability to make return on investments, the fact that they’re looking at Alberta’s dependence on fossil fuels with skepticism should probably make even a staunch conservative rethink what Kenney is doing. Also, LOL. It’s kind of funny.
Tyler: [laughs] It’s very funny.
Joel: Uh, it’s darkly funny. This also isn’t an isolated incident. The Bank of Canada is advocating for disclosures from companies in the resource sector about their carbon risk. Traders and speculators aren’t going to drive the decarbonization transition that we need, and they’re not going to do it fast enough. We’re probably going to need massive democratic pressure to play a big role in that. But these financial doubts could shift things dramatically given a more volatile situation.
Tyler: Hey, Joel, what’s up?
Joel: I’ve got a headline here from 2018, and it reads: “Are Energy Hedge Funds Going Extinct?” What does that mean?
Tyler: Well, first of all, a hedge fund, in case anyone doesn’t know, is just another investment fund. These are normally managed – sometimes managed by one person or a small group of individuals. They take investments from institutional investors like, for example, the Canadian Pension Plan or individuals with a whole bunch of money, and they take that and they invest it, and they can invest it in pretty much anything.
But – some hedge funds focus on the specific interests or the specific knowledge area of the people who actually run the fund. There are a lot of hedge funds – or there were – who invested exclusively in energy. So just think of, instead of like we just talked about with AIMCo where you had banks and oil and gas and mining and IT, these funds are all oil and gas. And ideally the manager of these funds understand the industry really, really well and they can get really good returns because of their specialized knowledge.
Turns out, since 2016, a whole bunch of these funds, not only are they doing poorly, they are closing. They’ve done so badly that – and these, you know, are people who are very well known – not to you or I, but to people in the investment space – have closed up their hedge funds because the returns have been so bad, and oil and gas has been so unpredictable; prices are going down; really hard for companies to actually turn a profit. All these factors are leading to this.
And it’s important to know that these are not just Canadian-based hedge funds. These are global, so these are people in Houston, primarily. These are people in Europe. These are people in South America that have access to energy markets and investments that are not the extremely marginal resources that we have in Canada, and they are failing. So what does that tell you about our chances up here?
Kate: So we’ve got this pretty weird situation where people’s pension funds, their deferred wages and their delayed income, is basically being grabbed by the state and kind of potentially used against them, both to reduce the ability of workers to have the right to a pension, and also to use those same funds to finance planet-killing projects that are probably, to be perfectly honest, going to end up as stranded assets that are going to get massively devalued.
So if you’re an astute listener, you’ve probably picked up on a lot of the contradictions that kind of exist in pension funds, but they have a very local flavor here in Alberta with our kind of dying oil industry and our fossil-capital-loving premier.
Joel: Two bad tastes that taste bad together.
Kate: Thank you, Joel.
Tyler: So, in, I guess, part two of this podcast, we’re going to actually get into contradictions of pension funds more generally. And to do, that we read a great book called “The Contradictions of Pension Fund Capitalism” in preparation for this episode. Highly recommended.
There are many authors, but of note, Kevin Skerrett and Sam Gindin wrote great sections that focus on Canada in particular, and it rules right away. You can tell because it has intro quotes on the Canadian chapters from David Harvey and also actually cites two of our favorite previous interview subjects on the podcast, Michal Rozworski and Toby Sanger. So, big-ups to this book.
Kate: So one of the things that this book details is why do pensions matter, in kind of a large macroeconomic sense. And the reason for that is that pensions are big and they keep growing. So global pension assets reached $30 trillion USD in 2015, and that’s double the level that they were at a decade earlier, and they actually represent 120% of GDP in OECD countries – so those are kind of like developed first-world countries. So these are massive, massive pools of money that exist in the larger space of the financialization of our economy.
Joel: And thinking back to how did we get to this point, well, after the Second World War, workers fought for a decent retirement age backed up by universal pension provision secured by the state. It’s important to note that by universal we mean white and male, however, and it did not encompass all work, necessarily. But in the US and Canada, we merged with a mixed pension system with public and private components. The private side of the equation was not equally distributed. There were high-quality pensions for those who won it through collective bargaining, or employers who used it as a way to attract talent or fight off unionization, or basically nothing.
Tyler: [laughs] The process of financialization that has fundamentally changed capitalism, which I think a lot of people have heard the term “financialization,” it affects everyone. So back in the 1950s to 1980s, there was something known as 3-6-3 banking, which is a bit of a joke but essentially meant that you got 3% interest on deposits if you put your money in a bank. The banks would lend it out at 6%, and then they would tee off at 3 p.m. So it was a pretty cut and dry banking system back in the day – very different from what it’s morphed into in the investment-driven banking that we see today.
Kate: And the growth of pension funds has really happened at the same time as this financialization, and it has also contributed to this financialization and also this liberalization of the global economy that has really happened in the past four decades.
And there are a lot of contradictions of pension fund capitalism, as the fact that there’s a whole book on the topic would suggest, but some of the main ones are that, basically, pension funds started to grow and grow and grow, and funds became so big that institutional investors were able to sell pension funds on their ability to receive better returns, and in theory, this would be a huge benefit to members who expect to receive their deferred wages in retirement.
But these asset managers kind of became attached to pension funds, and financialization grows in power, and what happens is asset managers were able to exert more and more political power, and this political power helped to roll back regulations and to weaken unions and even outright destroy certain firms via leveraged buyouts and things like that.
Tyler: Managed assets were so large that investors could even discipline governments via the bond market into reducing public spending. So that’s basically when big institutional investors buy a lot of bonds because they’re a really safe thing to invest in, and investors can say, “Hey, government. I know you need a bunch of money. We are not buying your bonds anymore, because we think you’re spending too much, you know, on social programs and the like. So stop doing that, or you’re not going to have any bond sales.” And ironically, the fight for a decent pension tied working people into this financial system, giving it more fuel and helping to destroy what they actually fought for.
Kate: And also making workers kind of complicit in industries that commit atrocities. You may have noticed that when I was listing off some of the investments earlier of an Albertan pension plan that gold and mining was in the list there. Like, the mining industry is one of the most, like, violently colonial and imperialist industries in the world, that is complicit in massive amounts of, like, colonial violence and the murder of Indigenous people, the murder of trade unionists, and yet workers in Canada, and in other first-world countries more generally, are funding these corporations through the pensions that they have fought for. So it really ties working-class people in the Global North into these larger systems of imperialism and of capitalist domination that happen on a global scale, so incredibly bad, bad. Not good.
And in short, what is happening is that to get greater returns on your pension asset portfolio, you require businesses to increase profitability, which they often do by cutting worker pay and benefits. And this might benefit a small number of pension holders, but it really can’t be universalized, this system, in any meaningful way.
Joel: Getting some real Frankenstein’s monster vibes here, where I create a giant pool of capital through my deferred wages and delayed income, and it goes – turns around and, like, assaults everyone by doing terrible things.
Tyler: [laughs] It’s also really important, I think, to understand that, you know, I think a really easy thing to ask is, well, why aren’t pensions investing in good things then, and not bad things? Well, most pensions are set up where the only rule – and this is a rule that people would call fiduciary rule, which is how you’re going to manage this money – the one rule is to get the highest possible rate of return. Now, it makes sense, if you are someone putting your money into that fund and want to retire on it later, yes, I want this fund to make as much money as possible so I have as much money when I retire. So those things make sense.
However, as we all know, industries in the world that tend to make the most money tend to be the most extractive, the most violent, and dominate the most people. So this contradiction is something that cannot be broken with the way pension funds are currently set up.
And there’s been a really big shift – we talked about this a little bit earlier – but from defined-benefit pensions to defined-contribution pensions. Like I said, the really important thing and the big change between these two things is who’s holding all the risk. It was the case that there were lots of defined-benefit pension plans where the employers or the government held all the risk and promised returns for the employees on the other end.
Now we’ve shifted to defined-contribution pensions, primarily, where all the risk is actually on the employee or the group of employees that are investing. This is kind of caused by, partnered with, the rise of the Thatcher and Reagan revolution and then Third Way governments across the Western world, and resulted in a strong move, like I said, away from defined-benefit pensions to DC pensions. Defined-benefit, DB; defined-contribution, DC. In the UK, for example, 87% of defined-benefit pensions are now closed to new entrants, which means if you join a firm, even if they have an operating defined-benefit pension plan still, you cannot join it.
Joel: None for you.
Tyler: None for you. You don’t get the good stuff. So I think it’s worth talking about now – we’ve talked about why pensions are bad in Alberta; we’ve talked about why they don’t really make sense in the capitalist economy that we live in writ large, but maybe we should talk about what we can be doing instead. And the authors of the book “The Contradictions of Pension Fund Capitalism” put together what we think is a pretty good way to think about how we could make a pension fund that is just and fair.
Joel: Chief among their recommendations is increasing the CPP replacement rate from a wage replacement rate of 30% to 50%. Tyler, what does that mean?
Tyler: Yeah, so currently, the Canadian Pension Plan, you contribute to it through taxes. You will notice that on your pay stub, for example, you will see CPP being deducted, and the way it’s calculated is that people, when they retire – and it’s a sliding scale based on income, but generally, that amount of CPP that is going to be given back to you when you retire is going to replace about 33% of what you were making before you retire.
Joel: So upping that rate from 33% to 50% is what they’re advocating.
Tyler: That is good. We would like to see that.
Joel: Yeah. Next on the list, doubling older security benefits from 12.5% of the average industrial wage to 25%.
Tyler: Yeah, and this – OAS is kind of the bedrock of what we have in Canada, which is a three-tiered plan, the OAS and CPP being two of those parts. OAS is guaranteed for everyone. So no matter what you contribute or taxes you pay, if you are eligible for CPP, you are eligible for what the OAS is giving you. So now we’re talking about 50% replacement coming from CPP under this plan, and 25 coming from OAS, so you add those together, and boom – there’s 75%. And that’s compared to what it would’ve been previously, which is somewhere between 45 and 50%.
Kate: And that goes very nicely with one of the other recommendations the authors of this book have, which are a dignity pension, which basically sets a minimum guarantee for how much pension funds you would be paid out by the federal government. And this is really important because this means if you experience prolonged periods of poverty or unemployment in your life, you’re not just going to be completely fucked when you retire and when you enter your old age, and are going to have basically a minimum guarantee that will allow you to enter your old age in dignity.
Tyler: Yeah, and the other cool thing that they’ve recommended is that they actually give merit to work that is not normally recognized in pension. So before, we talked about the invention of pensions, talking about universalizing it to working people. While “working people” then and still does mean something quite specific, you currently do not get any pension contributions if you are a stay-at-home parent, if you are a caregiver for an elderly relative, or something like that. So these are ways where we can make sure those people are actually included and getting the same type of pension that we think they should deserve.
Another really cool part of their proposal is better inclusion rules for immigrants – so, making them way less draconian; making them so if you come to Canada before the age of 45, you’re entitled to your CPP benefit; as opposed to making it really, really difficult. Immigrants to the company don’t really understand what they’re not even getting when they first move here, and may find out when it’s, frankly, too late, that they’re not getting the same retirement benefits as their fellow Canadians.
Another cool thing that they plan to do is to reopen the Government Annuities Program. So this is a low-cost option that did exist and was canceled, but it’s where people who have cash savings but no meaningful pension entitlement – so let’s say you either had an inheritance, or you’ve entered the workforce late or had a big period of your life where you weren’t working, and you may have come into some cash or had some saved up, but you haven’t contributed to the CPP – to the Canadian Pension Plan – to get that full kind of return that you would like, or to have it reflect your actual earnings or actual amount of money.
What you can do – and the way they actually pitch it is building it into a postal bank, so another really great idea is having post offices double as banks where you can open up checkings accounts and these types of things – and you could go there and purchase an annuity with extra cash that you have, which is a government-backed annuity, so very, very safe, that you can put money into that’s invested, and then when you retire, that annuity will start paying you out an annual or a monthly amount.
Kate: And one of the other things that I think is really important and honestly that I actually think the authors of this book don’t go quite far enough, is this shifting away from the current full-funding model, which includes, as we’ve discussed throughout this podcast, these really massive investment assets, to a pay-as-you-go model that has a socially, like, determined, kind of precautionary reserve fund – so, a small amount of money that’s kind of kept in reserve for a rainy day. But that the bulk of how this program is being funded is it’s being funded the same way everything else in our society is funded – the same way that K-12 education is funded or that our Medicare system is funded.
And I think this is really, really important, because I think that is how a society should operate. We don’t save up for kindergarten. We don’t save up if we have to go to the hospital. We shouldn’t save up if we are going to retire. Our society, as it currently exists right now, should just take care of people who are retired, take care of people who are in their old age, take care of people who can no longer work, and then when I and the other people in this room are in a position when we need those things, the society we live in will just take care of us. Because we live in a society-
Tyler: Gosh darn it.
Joel: We live in a society, and you pay for society through taxes.
Tyler: Yeah. And the nice thing about this, too, is it gets us away from the financialization problem that we’ve talked about, instead of having – the CPP is currently fully funded as well – insanely large amounts of capital that are just sitting around waiting to be invested. And one specific thing that Canadian companies have done which we don’t really even have time to get into, but invested a huge amount in actually privatizing public entities and infrastructure around the world. So they’re going to Chile and saying, “Hey, we’re privatizing your water system, and we own that now as the Canadian Pension Plan.” So, really terrible things that we as good members of a just society don’t want our pension assets to be doing. That is bad.
So instead of that, you reduce the need for this massive, huge fund of capital; you have the small reserve fund, which will still be big, but you can do some really great things with that, instead of investing in these horrible corporations. Because it’s small and it’s not intended to cover the whole amount, you can do things like invest in more renewable forms of energy, for example – things like that – instead of having to take out a loan from a bank, or high-interest loans that are hard to pay back.
Kate: And I also think a pay-as-you-go model is a better way of, as I said before, kind of thinking about our society, but instead of me thinking about it as, I put this money aside from my wages as a working person and this is now something that is owed to me specifically as an individual, is more that I contribute to our society according to my ability, and I and other people receive from our society according to what they need. And that is a much better basis for creating social cohesion.
The other objection I think people might have to a more pay-as-you-go model rather than the current kind of pension funds we have now is: what about trade unions who have worked and fought really, really hard to create these pretty good pension funds for their members and these good pension plans for their members? And my answer to that would be is if you take pensions off the bargaining table, that gives you so much more leverage to bargain for other things – to bargain for increased staffing, to bargain for increased wages – because you don’t have this other thing to worry about.
Joel: Yeah. What I think is really interesting about that is that the kind of time horizon that people are concerned with – both when it comes to, you know, saving up for the future or whatever you want to call it, and, like, bargaining at the bargaining table – in both those cases, if you’re not – you know, if you know that your pension plan is essentially guaranteed and is based on, like, the relative success of your society as a whole, you’re going to advocate for a better society. You’re not going to advocate for, like, your particular investment portfolio or your particular company and your particular income. You’re going to make a more, like, collective effort or social effort at increasing the relative wealth of society, because you count yourself into the pool.
And similarly, the time horizon for sitting at the bargaining table, you can focus on the here and now, which, like, if you’re always focusing on the here and now in a general sense, rather than, like, constantly fighting about whatever your pension plan looks like, you might create a good society.
Kate: Yeah. Like – yeah.
Tyler: That would be nice. You know, pension funds and this whole conversation is really – it’s a really big topic. It’s very challenging. Time horizons are one. The amount of money at stake. It’s also very technical – lots of moving pieces, hard to really decipher what exactly is going on.
But I think the main thing that people need to take away is the way our pensions are currently run is directly connected – and really, you can think of it as no different than, let’s say, Warren Buffett – someone who people can point to, saying, you know, part of the 1%; incredibly rich; all this money being wasted investing in these horrible enterprises. Well, the Canadian Pension Plan, for example, shouldn’t be viewed as much different than that. Just because it is a pension and provides something good for the majority of Canadians doesn’t mean that the way that we get to that end isn’t a bad thing, and it’s really important that we have these conversations to rethink how we can organize this really important part of our society to be better and provide the results that we want in society.
Kate: You might also be thinking, “I am in my 20s, and I have never had a pension, and I’m never going to have a pension. Why should I even care about any of those things?” And Tyler makes a bunch of really great points there, but I also think this can be really important as a tool of agitation among working-class people who do belong to unions. One of Alberta’s most recent successful wildcat strikes, which of course we would never endorse because they are illegal, was over pensions, and it was incredibly successful.
So, like, this is something that is absolutely a tool of agitation that can be used to work through issues of financialization and state control with working-class people and help them to see the ways in which that, like, the government stealing their pensions is connected to a lot of other issues. So I think it is incumbent on us to understand these issues and why they’re so important to working people in Alberta, and in Canada more generally.
So the big takeaway that we want you to have from this episode is that there is a massive central contradiction in the way pensions are administered currently in our society, and there is a massive contradiction in the pension funds that have been built up. So pensions are a central victory of the trade union movement in the Global North, but they’ve also created these giant pools of capital that are creating a worse society in, like, 100 different ways. They are creating a worse society insofar as they are propping up extractive industries, insofar as they are propping up imperialism in the Global South, insofar as they are propping up firms that don’t give their workers pensions and undercut wages and participate in time theft.
So that said, the right-wing attacks on pensions should absolutely be understood as attacks on public-sector workers and as a way to steal their wages in order to let oil companies do share buybacks, and that fucking sucks, and we should support workers when they take action to defend their pensions, and we should also understand fights over pensions as a radicalizing tool for certain portions of the working class. Definitely people who are in their 40s and their 50s, particularly in the public sector, pensions can be a very radicalizing and a very – and a big catalyst for action for a lot of those workers.
So I think it would kind of be tedious ultra-leftism to dismiss pensions wholesale as something problematic and wrong, but I also think we have to be honest with ourselves about the contradictions that exist in pensions and the myriad of ways in which they are doing harm, and we have to imagine better ways to allow people dignity and security in retirement and in old age, and that means creating universal public systems that take care of people when they are old and when they cannot participate in the workforce, without creating these giant funds of capital – much in the same way we fund other public services, like public healthcare, K-12 education, or public transportation. These are things that exist now that we pay for with our current society and that we pay for with taxes, and I think that’s the approach that in the future we should have to what we now know as pensions.
Joel: Wow, Team Advantage. We’ve all learned so much about pensions today. It was a real learning experience, and I’m so glad to have been here with you while we were all learning. So based on your reflections and everything you’ve learned, Tyler, could you tell me what’s your big retirement fund plan?
Tyler: Well, I am actually planning kind of a working retirement, where I’m going to be a chef who cooks roadkill over a garbage-can fire in the post-apocalyptic climate change-ravaged wasteland that we’ll all live in. So I’m going to have kind of a fun retirement where I kind of tap into some of my passions and supports me in retirement.
Joel: Cool, so, like, a roadkill barbecue kind of-
Tyler: Yeah. Yeah, yeah.
Joel: That sounds nice.
Joel: Kate, any big plans?
Kate: My retirement plan is being martyred, God willing.
Tyler: Very cool.
Joel: Very cool. Uh-
Tyler: And smart. Also very smart. Economically very smart.
Joel: I guess, like, stories will be told about you, which is kind of a bit showboaty, but I’ll allow it.
Joel: [laughs] My personal plan is to come up with really creative and tasty ways to eat insects, because I think that’s going to be a – there’s going to be a huge market for eating insects in the climate change-affected world in the future, so I’m banking on eating bugs.
Tyler: Ah, smart. Very smart. Yeah.
Tyler: Good job.
Joel: Well, on behalf of all of us here at Team Advantage, thanks so much for joining us, and take care out there.
Kate: The Alberta Advantage is part of a loose affiliation of left-wing podcasts hosted by the bilingual journalism collective Ricochet, who you can find at ricochet.media.
Our podcast is primarily supported through Patreon by listeners like you. We use the money for equipment and other semi-serious pursuits, and as a thank you, we send out fun packages with a grain elevator-themed stickers and weird tote bags a couple times a year. You can support us at patreon.com/albertaadvantage.
Thanks so much for listening, and take care out there. [end]