Written By Elizabeth Dylke and Allyson Marta

Canada’s federal government announced it intends to remove the “30 percent rule” for investments by domestic pension funds in Canadian entities. The change is part of the Fall Economic Statement that was released on December 16, 2024. Canadian pension funds have over $3 trillion in assets and are renowned as some of the best-managed in the world. The recent announcement aims to create a more attractive pension investment environment in Canada.

The long-standing 30 percent rule restricts Canadian pension funds from investing in the securities of a corporation to which are attached more than 30 percent of the votes potentially cast to elect the corporation’s directors (subject to limited exceptions). However, the 30 percent rule does not prohibit the ownership of an economic interest in excess of 30 percent. The rule is set out in the federal pension regulations, but pension legislation in most Canadian provinces also incorporates the federal investment rules. As such, the federal government announced that it plans to consult with the provinces in developing the legislative amendments.

The 30 percent rule was originally intended to limit plans to a passive role in the ownership of corporations. Canadian pension plans have historically had to expend resources to carefully structure their investments around the rule. The pension industry has more recently challenged the rule as being outdated and a source of increased pension investment costs. Elimination of the 30 percent rule in its entirety was previously considered by the federal government, including as part of a consultation in 2016. At the time, certain large public pension plans submitted that it would be prudent investment management for plans to have oversight and control over the governance of an investment in which a plan holds a significant economic position.

It appears that under the proposed changes, plan administrators would still need to consider the existing 30 percent rule in respect of foreign investments but would also need to navigate the exemption for investments in Canadian entities. When the legislation becomes available, it will provide key details of the new rules. However, to accommodate the new legislation, plan administrators will at a minimum need to review and adapt investment policies and procedures and standard side letter terms.

The 2024 Fall Economic Statement included several other measures to facilitate increased pension fund investment in Canada, announcing that:

• The federal government is exploring lowering the 90 percent threshold that currently limits municipal-owned utility corporations from attracting more than 10 percent private sector ownership. Lowering this threshold would allow Canadian pension funds to acquire a higher ownership share in these entities.
• The federal government is currently consulting on proposed regulations to require federally-regulated pension plans with assets under management greater than $500 million to disclose their investments by jurisdiction and asset class. It will also engage with the provinces regarding similar disclosures for provincially-regulated pension plans.

Bennett Jones also looks at new measures in the Fall Economic Statement to facilitate increased pension fund investment in the country’s venture capital sector in the update Attracting Pension Fund Investment in High-Growth Canadian Companies.

To discuss what the changes to the 30 percent rule—or any of the other measures to increase pension fund investment in Canada—could mean for your organization, please contact Elizabeth Dylke or Allyson Marta.

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