A fter having spent all they can tax and borrow, many politicians try to get their hands on people’s pensions and direct that capital towards political objectives.
In Canada, the Trudeau government is pushing public and private pension funds to invest more domestically in the hopes of raising productivity and boosting the country’s investment numbers, which are dismal. Relative to the third quarter of 2015, the last quarter before Justin Trudeau became prime minister, business investment in Canada in the fourth quarter of 2023 was down 13.8 percent on a real per capita basis. Moreover, as the C. D. Howe Institute reports, investment “has been so weak since 2015 that capital per worker has been falling — part of an ominous pattern of stagnating productivity and living standards.”
Canada’s declining business investment is the predictable outcome of the federal government’s tax hikes, spending explosion, and overbearing regulatory expansion of the past eight years, and reversing these policies would be the only way to create an environment that encourages business investment. That the Trudeau government instead wants to tell large Canadian pension funds how to invest reflects its unwavering belief that economic problems should be solved by taking a government crowbar to private capital.
No specific legislation has been tabled so far, but the government has proposed introducing new reporting requirements related to jurisdictional breakdowns of assets held by large, federally regulated pension plans and says it “will work collaboratively with Canadian pension funds” to encourage more domestic investment.
While Canada’s current investment and economic-growth crisis might be the impetus behind the government’s latest efforts — Finance Minister Chrystia Freeland called on pension funds to invest more domestically in last November’s Fall Economic Statement, and repeated this call several weeks ago — the Liberals have long tried to influence pension funds to allocate capital towards their objectives.
Back in 2016, Trudeau met with top officials at Canada’s major pension funds with the thinking, as summarized in the Financial Post, that if more of pensions’ financial firepower “could be redirected towards projects at home — perhaps ones aligned with government priorities — it might be a win-win, stretching federal dollars further while allowing pensions and the private sector to profit at the same time.” Possible projects included toll roads, power plants, and — what might generate more fanfare among Liberal voters — public transit and green infrastructure.
Pension executives were skeptical of Trudeau’s early pitch. The government wanted major pension funds to invest billions into early-stage projects, but as one pension-plan official told the Post, “I would say in general that this was thrown together without much thought and they seemed to be unaware that pension funds had not been involved in greenfield infrastructure projects.” Another pension-plan executive tried to explain that pension plans would require higher expected returns in exchange for taking on more risk and would rely on taxes and regulation to be stable and predictable in the long run. “I told Trudeau all of this. He did a decent impression of listening.”
It is a good thing that pension-plan executives did not listen to him by lining up behind government objectives instead of fulfilling their fiduciary responsibility to the Canadians whose assets they are managing.
Yet it cannot be said that all is well. While pension plans in which people enroll voluntarily are subject to market discipline, whether in Canada or anywhere else, public pension plans often tend to become entangled in politics — evidenced by, among other things, their inordinate commitment to environmental and social objectives.
Consider for example the Canada Pension Plan, into which almost all Canadian workers outside of Quebec must pay, and whose assets under management are determined not by people’s willingness to commit their assets to the plan but rather by the federal government. In January, the Canada Pension Plan tax was hiked (or, to use the government’s phrasing, workers’ mandatory CPP “contributions” were “enhanced”) for a fifth consecutive year. And the increase was significant: From $7,509 in 2023, the total employer-plus-employee payment to the CPP for a worker earning $75,000 per year rose to $8,015 in 2024.
That the federal government has its hand on workers’ payments into the CPP and cheerleads its investments in green energy may not be the cause of the CPP investment board’s extraordinary enthusiasm for climate activism (see, for example, its 2022 document outlining its intentions to leverage its assets to push society towards net-zero carbon emissions), but it is probably not irrelevant, either. This, along with Finance Minister Freeland’s newly added pressure on pension funds to invest in ways preferred by the government, should give Canadians whose assets are entrusted to these pension plans a twinge of unease.
If the Trudeau government really wants to reverse Canada’s declining business investment, then instead of attempting to conscript workers’ pensions, it should start by withdrawing the damaging economic policies implemented over the past eight years.