The Liberal government has announced it will launch a consultative process on the investment rule that restricts pension plans from holding more than 30 per cent of the voting shares of a company.
According to the 2016 budget, announced on March 22, the public consultation on the usefulness of the 30-per-cent rule will begin “shortly.”
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“In many ways, some of those limitations are useful for some of the smaller plans for which diversification is a huge benefit,” said Jean-Philippe Provost, leader of Mercer’s retirement practice in Canada. “There’s a huge amount of risk in focusing on one sector or equity from one organization.
“To the extent that there is some relaxation around that rule, there could be some benefit to organizations, but it could also be a negative in the long run, if it’s not applied appropriately. It’s too early to tell. If they are thinking of increasing it from 30 per cent to 35 per cent, that’s one story; but if they were to increase it much more significantly, that’s a much different story.”
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Arguments in favour of eliminating the rule have generally reasoned that investment performance would be better if pension plans had the ability to hold more than 30 per cent of the voting shares in specific companies, according to consultancy Eckler in a budget notice. “In all likelihood, only the largest pension plans would have the requisite investment expertise to take advantage of this greater latitude,” it added.