Federal Fall Economic Statement 2024: spotlight on Canadian pension funds

In its 2024 Fall Economic Statement released on December 16, 2024, the Government of Canada announced it is moving forward to implement measures aimed at increasing pension fund investment in Canada. Its intention to explore these investment initiatives was first announced in its 2023 Fall Economic Statement, which we discussed in our previous bulletin.

Pension fund developments

Last November, the government announced that it was considering several proposals of interest to registered pension plan administrators, including the elimination of the “30% rule” for investments in Canada. At that time, Stephen Poloz, former Governor of the Bank of Canada, was tasked to explore how to encourage greater domestic investment by Canadian pension funds. The former Governor has since consulted with pension funds, equity investors, academics, unions, and industry representatives on ways to do so. 

The new measures include the following legislative changes and other pension fund measures.

Legislative changes

• Removing the 30% rule on investments in Canadian entities. The 30% rule restricts Canadian pension funds from investing in securities of a corporation that carry more than 30% of the votes that may be cast to elect directors of the corporation (subject to certain limited exceptions). By repealing the rule, the government is hoping Canadian pension funds will make more significant investments in Canadian entities. No announcement was made to remove the 30% rule for foreign investments. The government is proposing changes to the Federal Investment Rules set out in Schedule III to the Pension Benefits Standards Regulations, 1985, which govern federally regulated pension plans. During the development of these amendments, the government plans to consult with the provinces on the treatment of provincially regulated pension plans as well. However, since many provinces already adopted the Federal Investment Rules in their own governing pension legislation, the proposed changes could automatically also affect pension plans registered in such provinces. Pension plan administrators are encouraged to review their Statement of Investment Policies and Procedures (SIPPs) to determine whether amendments are needed and/or appropriate in light of these regulatory changes.
• Pension fund investment transparency. The government confirmed that it is currently consulting on proposed regulations to increase public transparency of pension investments for large federally regulated plans. These draft amendments to the Pension Benefits Standards Regulations, 1985 were released on November 2, 2024, which we discussed in our previous bulletin, “New disclosure requirements for large federally regulated pension plans”.
• Investing in municipal-owned utility corporations. The government will explore lowering the 90% threshold under the Income Tax Act that currently limits municipal-owned utility corporations from attracting more than 10% private sector ownership. The government believes that by lowering this threshold, it would allow Canadian pension funds to acquire higher ownership stakes and the utility companies to access more capital to meet future demand and expand electricity production.

Other pension fund opportunities

• Launching a fourth round of the Venture Capital Catalyst Initiative. With a goal of $1 billion in funding in 2025-26, this round will include more enticing terms for pension funds and other institutional investors in order to leverage more private venture capital.
• Bolstering mid-cap companies’ access to capital. The government will provide up to an aggregate of $1 billion, on a cash basis, to invest in mid-cap growth companies. These investments will be made by qualified fund managers, including Canadian pension funds. The government’s investment will be structured to be concessional and equal to 25% of net new private investments in order to inject additional private capital into the market. Pension funds (and other qualified managers) are invited to respond to the forthcoming Call for Expressions of Interest to become selected managers. Selected managers will be expected to join as significant co-investors with their own capital.
• Investing in AI data centre projects. The government will provide up to $15 billion in aggregate loan and equity investments for AI data centre projects. To access these loans or project equity, Canadian pension funds must invest at a ratio of 2:1 of their own capital, via debt or equity, and become significant shareholders in an AI data centre project. According to the government, seven pension funds have expressed interest in working with the government on such projects. More details are expected to be announced in the 2025 budget.
• Investing in airports. The government will engage with airports and pension funds on ways to further incentivize development on airport lands in order to attract investment for improvements, including exploring potential changes to airport authority ground leases. It also indicated that its policy statement clarifying the existing flexibilities available to help airports attract capital would be released soon.

We anticipate that there may be questions on these amendments, including the proposed repeal of the 30% rule on investments in Canada. To discuss these issues, please contact the authors or other members of our Pensions and Employment Practice.