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Ontario Teachers Pension Plan opposes proposed cap on income trusts for pension plans
March 29, 2004
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  Toronto, Ont.--The Ontario Teachers Pension Plan (OTTP) explained its negative position on the proposed cap on income trust investment included in the federal 2004 budget. The budget states that pension funds cannot hold more than one percent of their assets in an income trust.

"The proposed cap on income trusts seriously discriminates against the 250,000 teachers and the millions of Canadian workers whose retirement income is managed by pension plans. This proposal would unfairly exclude them from benefiting from the growth and stable cash flows income trusts are expected to provide," says Claude Lamoureux, President and CEO.

“A number of very successful people in the business community have said to me about this issue… that if you want an economy that’s really vibrant and thriving and growing, as opposed to simply generating revenue streams, then the corporate model is the better model,” Finance Minister Ralph Goodale told Reuters.

But the OTTp feels that income trusts are an important tool to help diversify risk and find additional value to pay teachers' pensions. “Income trusts are attractive investments,” says Lamoureux. They give investors greater control over the cash flow generated by businesses. This proposal would seriously handicap our ability to make money for teachers and would put us at a severe disadvantage in competing for investments against other Canadian and foreign investors.

In 2003, income trusts provided the Teachers' plan with almost $800 million in investment income, mainly from capital gains. Over the past two years, the Teachers' fund has acquired significant income trust investments worth over $1 billion today. These holdings are already beyond the one percent limit suggested by the federal government in its budget earlier this week.

The cap would not apply to RRSPs, investment funds, mutual funds or foreign investors including foreign pension plans -- just to Canadian pension plans.

"The proposal puts all Canadian pension plan members at a significant disadvantage to other Canadians and all foreign investors," says Lamoureux. "The proposed caps are unnecessary. The federal government receives tax revenue from teachers' pension income. Our retirees received $3.2 billion in pensions in 2003 and paid $800 million in tax to governments."

The $75-billion Ontario Teachers' Pension Plan is an independent corporation responsible for investing the fund's assets and administering the pensions of Ontario's 155,000 elementary and secondary school teachers and 93,000 retired teachers.

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