Federal Government’s 2024 Fall Economic Statement Announces Key Changes to Pension Fund Investments
December 20, 2024
The Federal Government’s 2024 Fall Economic Statement, released on December 16, 2024, included three significant announcements regarding pension fund investments:
- That the Government proposes to remove the 30% rule for investments in Canadian entities.
- That the Government will explore lowering the 90% threshold that currently limits municipal-owned utility corporations from attracting more than 10% private sector ownership.
- That the Government is currently consulting on proposed regulations to increase public transparency of pension investments for large federally regulated plans.
Removing the 30% Rule
The 30% rule restricts pension plans from holding more than 30% of the voting shares of a corporation. The rule was initially intended to protect pension assets on the theory that pension funds should be passive investors, rather than overseeing the operations of businesses. The 30% rule applies to federally regulated pension plans, but has also been incorporated into most provincial pension legislation. See our earlier blog post for further discussion on the 30% rule.
The Federal Government initially proposed that it would explore removing the 30% rule in a 2016 consultation paper. The Federal Government has maintained commitment to its removal in the 2023 Fall Economic Statement where it first indicated that the rule would only be removed for Canadian Investments. In the 2024 Federal Budget, the Federal Government announced that it would work with pension funds to create a working group, lead by Stephen Poloz to, in part, explore the removal of the 30% rule. See our earlier blog post about the 2024 Federal Budget.
The 2024 Fall Economic Statement demonstrates a continued intention to remove the rule and now expresses a firm intention to do so, instead of merely “exploring” the removal. The 2024 Fall Economic Statement identifies an intent to “amend regulation” to remove the rule and commits to consulting with provinces on the treatment of provincially-regulated pension plans during the development of such regulatory amendments.
Removing the 90% Rule for Municipal-owned Utility Corporations
The announcement that the Federal Government will explore lowering the public funding threshold for municipal-owned utility corporations represents a new intention, not previously outlined in the 2023 Fall Economic Statement or 2024 Budget. Currently Municipal-owned Utility Corporations are limited by the Income Tax Act from attracting more than 10% private sector ownership. Lowering this threshold would allow Canadian pension funds to acquire a higher ownership share in these entities.
This proposal follows calls for the Government to lower the threshold following the release of Ontario’s 2024 Fall Economic Statement which proposed to amend Ontario’s Electricity Act, 1998, to promote consolidation in the electricity distribution sector. Critics argued that the proposed amendments would be fruitless unless the Federal Government lowered the 90% rule which creates a barrier for Municipal-owned Utility Corporations to attract funding required to meet the net-zero targets.
Consultation on Transparency of Pension Investments
The consultations will focus on proposed regulations which would require the Office of the Superintendent of Financial Institutions to publish the distribution of investments of federally regulated pension plans with assets under management greater than $500 million, including their investments by jurisdiction and asset class within each jurisdiction.
The intention to increase transparency was first announced in the 2023 Federal Economic statement. The 2024 Budget confirmed this intention but included that in doing so, the Federal Government would amend that Pension Benefits Standards Act, 1985 to enable and require the Office of the Superintendent of Financial Institutions to publicly release information about the pension fund investments by large federally regulated plans. However, the budget contained no indication of which plans would be captured by this amendment as “large” federally regulated plans.
The 2024 Fall Economic Statement now sets a threshold for “large” federally regulated plans as plans with assets under management greater than $500 million. Further, the 2024 Fall Economic Statement indicates that consultations in respect of these amendments are underway.
Other Related Announcements
The 2024 Fall Economic Statement also included other initiatives pertinent to pension funds, including engaging airports and pension funds to incentivize investment in airports, launching the Venture Capital Catalyst Initiative to include more enticing terms for pension funds to invest in venture capital investments, and developing a program to fund aggregate loan and equity investments for AI data centre projects that receive investment from one or more Canadian pension funds.
Practice Area
Pension and Benefits
