It would be better if CEOs took aim at all of the bad Trudeau government policies that are damaging the investment climate rather than trying to jerry-rig pension investment rules which will not fix the fundamental problems. Pictured: Finance Minister Chrystia Freeland. Photo Credit: Canadian Press/Adrian Wyld.
Last week just under 100 CEOs of major Canadian corporations published a letter to federal Finance Minister Chrystia Freeland and all provincial finance ministers suggesting that Canadian pension plans should invest more in Canada. The signatories to the letter largely represent the major corporations in Canada, including Rogers, Telus, Air Canada, a number of resource companies and large retailers, among others. Not surprisingly, several large players in the investment industry are also included. It’s interesting that the only bank represented is the National Bank, and not one of the Big 5. The big banks in Canada have been the target of increased taxes imposed by the Liberal/NDP coalition government, and perhaps they’d rather not draw attention to themselves as it may lead to another negative outcome for their industry.
A key point made in the letter is that from 2000 to 2023, Canadian pension funds have reduced their holdings of publicly traded Canadian companies dramatically – from 28 per cent to less than four per cent over this period. The letter also notes that the largest pension funds in Canada currently have more money invested in China than in Canadian equities. The CEOs make the case that the Canadian economy would be better off if these pension funds invested more in Canada than they are currently, although they do not specify any particular reforms to pension policy to accomplish this goal but do suggest a few possible incentives.
There was a time when pension funds in Canada were limited in terms of how much foreign investment they were permitted to undertake, but virtually all of those restrictions were removed a couple of decades ago as it became clear that these provisions were too restrictive as the funds got much larger. In recent years, pension funds have invested more in private equity than publicly traded stocks as returns were more attractive.
Despite being a relatively small economy, Canada has eight of the world’s 100 largest pension funds with over $3 trillion dollars under management. The Canada Pension Plan (CPP) alone has almost $600 billion to invest and is believed by some to have an excess of funds needed to meet pension obligations. This means that either CPP premiums should be reduced, benefits increased or a combination of both. Other than CPP, the other large funds are to the benefit of government employees federally and provincially, with private sector taxpayers contributing many billions every year to ensure that government employees have much better pensions than private sector workers can afford for themselves.
Reasons for this imbalance are that the Canadian government has one of the highest rates of unionization in the world and governments at all levels and all political stripes have consistently caved to union pension demands. Canadian private sector taxpayers have also been very complacent in permitting this inequity to continue. Now that issues such as our aging population and lower investment returns have greatly constrained private sector pensions while public sector pensions have been virtually unaffected as they are propped up by all taxpayers’ deep pockets, it is time for the majority of Canadians who are employed in the private sector to send a clear message to governments that this unfairness cannot continue.
The CEOs’ views are undoubtedly a response – albeit a self-interested one – to the fact that investment in Canada overall has declined sharply in recent years to the detriment of our economy and our standard of living. The answer to this is not, however, to change pension rules to leverage more investment in Canada, but to fix the problems that are causing investors to flee. It is well recognized that the Trudeau government’s policies of greatly increasing the regulatory burden on Canadian business, overspending and expanding government excessively and punishing the important resource sector for ideological reasons have introduced a great deal of uncertainty into the investment climate in Canada.
And uncertainty is kryptonite to investors. It would be better if these CEOs took aim at all of the bad Trudeau government policies that are damaging the investment climate rather than trying to jerry-rig pension investment rules which will not fix the fundamental problems. Unfortunately, the large corporate sector tends to “go along to get along” with the government of the day instead of rocking the boat with sensible policy change recommendations.
The key goal of all pensions plans should be to focus on attaining the maximum return on investment, while respecting legalities and financial sector regulations. Introducing political goals into the mix should not be considered. In Canada, where all large pension funds are found in the public sector, pursuing political ends that reduce rates of return could risk pension fund shortfalls, for which all taxpayers would be on the hook. This would further increase inequities between public and private sector pension entitlements, where the gap is already excessively large.
The CEOs aren’t wrong to identify Canada’s investment climate as a huge problem. They are just focussing on the wrong solution. What is needed from this august and influential group are solutions that will solve the true underlying problems, not just tinker around the edges and perpetuate a poor climate for investment in Canada.
She has published numerous articles in journals, magazines & other media on issues such as free trade, finance, entrepreneurship & women business owners. Ms. Swift is a past President of the Empire Club of Canada, a former Director of the CD Howe Institute, the Canadian Youth Business Foundation, SOS Children’s Villages, past President of the International Small Business Congress and current Director of the Fraser Institute. She was cited in 2003 & 2012 as one of the most powerful women in Canada by the Women’s Executive Network & is a recipient of the Queen’s Silver & Gold Jubilee medals.
