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Canada scraps foreign content cap on pension plans
Wed Feb 23, 2005 05:46 PM ET
OTTAWA, Feb 23 (Reuters) - Canada will remove a cap on foreign assets held in retirement savings plans and also let people put more money into such plans by 2010, the government said on Wednesday.
The move, announced in the federal budget, means there will be no restriction on where Canadians invest their retirement dollars. It scraps a 30 percent limit on foreign content in the retirement savings plans and clears the way for Canadian investors to put more money into overseas markets.
Analysts said the change was long overdue, given that some pension funds and investors already use derivatives and other instruments to sidestep the existing 30 percent foreign asset cap.
"It will open up the possibility of Canadians investing abroad," said BLC Securities chief economist Carlos Leitao. "Individual Canadians will probably not benefit that well. This is more of an issue for pension fund managers and institutions.
The foreign content limit on registered pension plans and registered retirement savings plans has been 30 percent since 2001. The limit aimed to back domestic capital markets and ensure savings funds flowed into Canadian companies.
But the government's federal budget said such protection was no longer necessary.
"As (Canadian) markets have grown and matured since the early 1990s and become more integrated with global capital markets, access to capital for Canadian companies has improved substantially," it said.
The government will also raise let individuals put more money into the tax-deferred savings plans, raising contribution limits to C$22,000 a year by 2010 from C$16,500 this year.
"There's going to be some implications for the rise in savings rates from the very low levels that it's at right now," said Robert Spector, chief economist at Merrill Lynch Canada. "The raising of the RRSP limits -- caveat being, to the extent that they are taken advantage of -- certainly encourages more savings for Canadians which will come to the detriment of lower consumption."
Economists said most Canadians have not reached their foreign investment caps and the change, which is effective immediately, was most likely to affect institutional investors.
Any major foreign investments by them could weigh on the Canadian dollar, but the economists said the government might not find that a concern given that a stronger currency has hurt Canadian exports.
Wed Feb 23, 2005 05:46 PM ET
OTTAWA, Feb 23 (Reuters) - Canada will remove a cap on foreign assets held in retirement savings plans and also let people put more money into such plans by 2010, the government said on Wednesday.
The move, announced in the federal budget, means there will be no restriction on where Canadians invest their retirement dollars. It scraps a 30 percent limit on foreign content in the retirement savings plans and clears the way for Canadian investors to put more money into overseas markets.
Analysts said the change was long overdue, given that some pension funds and investors already use derivatives and other instruments to sidestep the existing 30 percent foreign asset cap.
"It will open up the possibility of Canadians investing abroad," said BLC Securities chief economist Carlos Leitao. "Individual Canadians will probably not benefit that well. This is more of an issue for pension fund managers and institutions.
The foreign content limit on registered pension plans and registered retirement savings plans has been 30 percent since 2001. The limit aimed to back domestic capital markets and ensure savings funds flowed into Canadian companies.
But the government's federal budget said such protection was no longer necessary.
"As (Canadian) markets have grown and matured since the early 1990s and become more integrated with global capital markets, access to capital for Canadian companies has improved substantially," it said.
The government will also raise let individuals put more money into the tax-deferred savings plans, raising contribution limits to C$22,000 a year by 2010 from C$16,500 this year.
"There's going to be some implications for the rise in savings rates from the very low levels that it's at right now," said Robert Spector, chief economist at Merrill Lynch Canada. "The raising of the RRSP limits -- caveat being, to the extent that they are taken advantage of -- certainly encourages more savings for Canadians which will come to the detriment of lower consumption."
Economists said most Canadians have not reached their foreign investment caps and the change, which is effective immediately, was most likely to affect institutional investors.
Any major foreign investments by them could weigh on the Canadian dollar, but the economists said the government might not find that a concern given that a stronger currency has hurt Canadian exports.
