Pension regulation is an important issue for the efficiency of Canada’s capital markets, said Bank of Canada Governor David Dodge.
In a speech to the Economic Club of Toronto, he said there is a crucial need for a framework that provides the appropriate incentives for employers to establish and maintain pension plans, so that these vast pools of capital can make their maximum contribution to the efficiency of the Canadian economy.
“But our current regulatory framework instead provides a number of disincentives for firms to establish or maintain defined benefit plans,” Dodge remarked. “These disincentives, along with recent low long-term interest rates, have led to increased solvency deficits among many defined benefit plans.”
He said it is important to get incentives—such as the federal and Quebec governments’ steps designed to help plan sponsors meet the solvency funding test by obtaining letters of credit—so that DB plans, which have a long-term investment perspective, can continue to grow.
Dodge also discussed the need for investment in infrastructure and the need for pension funds to find long-term assets seems perfectly suited to the private-public partnership model: P3.
However, he said, this match can’t be made if governments do not have an appropriate framework in place for using P3s when looking at infrastructure improvements.
“If capital markets are to make their maximum contribution and to provide financing for needed infrastructure,” Dodge said, “then action is essential both to reduce the disincentives for pension plan sponsors and to improve the framework governing private investment in public infrastructure.”
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