Achi news desk-
In its 2024 budget, Ottawa announced that former Bank of Canada governor Stephen Poloz would lead a group to examine how to make it more attractive for pension funds to invest domestically.Sean Kilpatrick/The Canadian Press
Anthony Pizzino is the chief executive of the National Association of Federal Retirees.
Canada’s economy could use a boost, but trying to mandate investment from pension funds is wrong and unfair.
Yet in an open letter last month, that’s basically what 92 business leaders from across the country have urged federal and provincial finance ministers to do. They argue that the ministers should amend the rules governing pension funds to encourage them to “invest in Canada” and suggest that the government “has the right, responsibility and obligation to regulate how the systems save this action.”
Now, the federal government has bowed to their request. In Tuesday’s budget, the government announced that former Bank of Canada governor Stephen Poloz would lead a new working group to examine how to make it more attractive for pension funds to invest domestically.
At first glance, this sounds reasonable. But it is a slippery slope to greater political interference in pension fund investments. And such a move reflects a deeper problem.
This is not about investing in Canada to boost the economy, as those 92 letter writers say; it’s about these business leaders seeing money they want to spend on their corporations. Such a policy would amount to a business subsidy using Canadian retirement savings.
Hard working Canadians do not want governments playing politics with their pensions. The money in Canadian pension funds, such as the Canada Pension Plan (CPP), represents their retirement savings. The funds are not there to provide a source of investment dollars for private corporations or to pump up the value of a publicly traded company’s stock price. Pensions are in place for a reason; they provide Canadians with long-term retirement income security.
Pension funds are not in the business of investing in things that are strength make money 25 years down the road. While they can invest in long-term investments, their interest is in investments that will make money now, to secure the retirements of their plan members – their raison d’être. They have a fiduciary duty. In other words, taxpayer funded pension schemes are not slush funds for corporations. Pension funds are there for scheme members, and they must be responsible to workers and pensioners who should not be deprived of their retirement benefits.
Furthermore, while pension funds include contributions from employees and employers, the majority of these funds are the result of returns on investments that would not exist were it not for the original investments. Pension fund investors are smart. If there was more money to be made by investing in Canadian public equity, pension plans would already be doing so.
We should not think of Canada as a small country, but economically, it is, representing less than 3 percent of global GDP. Yet our pension schemes are among the largest and most successful in the world. As such, there are not a large number of profitable opportunities that pension funds could invest in without stepping on each other’s toes. The proposed policy could actually create artificial competition among pension schemes for those limited potential investments.
It is important to diversify and not concentrate all our investment eggs in one basket. Having a portfolio with investments around the world reduces risk and increases opportunities for growth, making Canadian retirements more secure.
There’s also the fact that most Canadian pension plans are already punching above their weight when it comes to investing in Canada. Pension funds such as the Healthcare of Ontario Pension Plan and the Ontario Teachers’ Pension Plan have already invested more than a third of their funds in Canada. Canadian pension funds would prefer to invest here for a host of reasons, and do so as much as is practical.
In response to the business leaders’ letter, several former pension scheme chief executives wrote an opinion piece in this paper decrying this idea. In part, it has been argued that Canada is a global pension role model, largely because its plans have been allowed to invest and grow without political interference.
Those former CEOs are right. It is not advised to change to a robust policy of preventing intrusion. We should not interfere with the independence of pension fund investment boards such as the CPPIB.
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