Alberta Pension Plan Simulator
This model is for illustrative and educational purposes only. Please read notes carefully.
The minimum contribution rate is the fraction of pensionable earnings required to ensure the plan's assets do not decline relative to obligations. For the base CPP this is approximately percent. This is lower than the current 9.9 percent contribution rate, which implies the CPP is more than likely sustainable. To evaluate a separate Alberta plan, compare its minimum contribution rate to the CPP's.
Selected demographic statistics:
The internal rate of return is the discount rate where the present value of future contributions equals the present value of future benefits. Intuitively, this is the rate a risk-free savings account would need to pay to provide identical benefits as the pension plan does. Below are estimates for a hypothetical individual age 18 who will earn the maximum pensionable amounts ( in 2023, increasing thereafter) over their working life (excluding standard dropout provisions, where they are assumed to have earned and contributed nothing) and who will retire at age 65.
These estimates are useful to evaluate risk. An APP is riskier than the CPP due to greater potential variability in demographics, investment returns, and so on. Differences in internal rates of return due to different contribution rates should be weighed against those additional risks. Individuals vary in their willingness to incur higher risks to achieve higher returns.
Pension plans collect contributions and pay benefits for many decades into the future. Comparing the present value of future cash flows, along with current total plan assets, provides useful information about plan sustainability.* The following is based on the selected projection horizon and the estimated minimum contribution rate. To learn more about this technique and its uses, see the OSFI's Actuarial Study No. 21. The end-of-horizon MCR ensures the asset-to-expenditure ratio at the end of your selected horizon (see Balance Sheet Analysis) is the same as in 2034.
* As is appropriate for a plan of this kind, the above calculations follow an open group approach.
Displays the distribution of minimum contribution rates across simulations over a 75-year horizon, using similar volatility assumptions as in the CPP analysis. The vertical line marks the current CPP minimum contribution rate of 9.5 percent. Bars shaded in blue are lower cost scenarios; red are higher costs.
A brief description of certain model variables follows:
- Initial assets: The plan's initial endowment sets the value in 2025. There is no obvious way to set this value, since the Canada Pension Plan Act is somewhat imprecise. For context, the CPP is projected to have just over $600 billion in 2025. The “GoA Scenario” is set to a lower value than the $334 billion found in analysis commissioned by the government of Alberta because this model begins at an earlier date than theirs.
- Fertility rate: Age-specific fertility rates are inferred using a restricted spline technique from 5-year cohort rates from Statistics Canada for 2021. These are rescaled proportionally to the user's selection and gradually phased in from observed 2021 rates to the user selection by 2030. For context, the rate in 2008 for Alberta was 1.9; in 2016, 1.75; in 2020, 1.5.
- Immigration and emigration: The volume (as a share of the population) and age/sex distribution of net international migration flows match the 2002-2019 average using Statistics Canada data.
- Interprovincial migration: The volume (as a share of population) and age/sex distribution of net interprovincial migration flows match the 2002 to 2019 average using Statistics Canada data.
- Net migration rate: Users can select the net migration rate, the baseline of which is set to 1% to match the 2002 to 2019 average. Increases or decreases in this rate will proportionally change the age- and sex-specific net international and interprovincial migration rates.
- Mortality improvement rate: The ultimate average annual rate of decline in mortality rates. The baseline is 0.8 for most age groups, as in CPP31, with lower improvement rates for those over age 90. Changes in this will increase or decrease the rate of improvement proportionally across all age groups. Selecting 0% means no improvement in mortality. Selecting +1.6% means double the pace of improvement. For details on mortality improvements, see Actuarial Study No 22 from the Office of the Chief Actuary. As in CPP31, there is a larger initial improvement rate that converges to the ultimate improvement rate by 2035. The initial age- and sex-specific mortality rates for Alberta are from Statistics Canada for the three-year period 2017-2019.
- Investment risk: Real investment returns are volatile. Select the average real rate of return to generate the minimum contribution rate associated with that return. The investment risk tab displays the distribution of 75-year average returns based on random annual draws from a normal distribution centered on your selected return with a standard deviation of percent. This volatility corresponds to a 70/30 equity-debt split in the investment fund's portfolio and is equal to the expected long-term volatility in the CPP from 2033 onwards.
- Internal rates of return: The (nominal) internal rates of return are for an 18 year old whose general dropout provisions apply to their first 8 years of employment. They are evaluated at the minimum contribution rates. Benefit amounts for CPP and APP are identical, so differences in returns are only due to differences in contribution amounts for this individual.
- Other details: Population projections are based on a two-sex Leslie model. The results of this projection closely align with projections from Statistics Canada and the projections used by the CPP 31st Actuarial Report (depending on assumptions).