© Copyright 2006 Rogers Publishing Ltd. The following article first appeared in the November 2005 edition of BENEFITS CANADA magazine.
Frontlines: Wrench in the works
Ralph Goodale’s income trust stance has the industry abuzz.
By Joel Kranc

At first glance it appeared like another run of the mill announcement from the federal department of finance. But on closer inspection, Ralph Goodale, the minister of finance, made a significant statement on the potential future of income trusts.

Back in September, Goodale postponed any advance rulings on so-called flow-through investment entities or income trusts. And despite initial drops in the markets after the announcement, things seemed to stabilize somewhat, according to Leslie Lundquist, vice-president, portfolio manager of income trusts with Franklin Templeton Investments in Calgary.

“With the uncertainty that the discussion paper put into the market there was a great deal of volatility…But it seemed we might just have a one-time temporary drop,” says Lundquist. However, the S&P/TSX Composite Index’s decision to halt making income trusts a part of the index added to the volatility.

And with trusts potentially being left out of the market, Lundquist wonders if institutional investors would even participate in this part of the market. In the meantime, the department of finance is accepting comment on its discussion paper until the end of 2005. Lundquist says the two big issues for pensions will be whether they will they be allowed to invest in income trusts and whether trusts will be a part of the index.

And even though only larger plans invest in income trusts, the repercussions may be felt by the mid-size and smaller plans that were considering the investment down the road. So before Goodale makes any decisions, pensions and institutional investors will try very hard to keep them. “There are pensions out there that need to pay their beneficiaries on a regular basis. They do truly need to generate income. And income trusts are beautifully designed to be able to do that,” stresses Lundquist. “So I think trusts can make a lot of sense for pensions where they may perhaps have some trouble meeting their income requirements,” she added.

Before the discussion is over, opinions will be made known. Says Lundquist, “I suspect the pension industry will fight hard to be able to invest in trusts in a way that makes money for everybody.”

World View

Workers of the world, relax. According to a new survey from Mercer Human Resource Consulting, average pay worldwide is expected to rise to 2.4% above inflation. That’s compared to a 1.9% rise last year.

Salaries in both the United States and Canada are forecast to increase by 3.6%. But Canadian workers are expected to fare better than their American cousins. The reason is U.S. inflation is forecast to rise 2.6% and Canadian inflation is only expected to rise 1.9%. In Mexico, salaries are likely to increase by about 5% while inflation is expected to come in lower at 3.9%.

The lowest salary increases for South America are expected in Panama where workers can expect a 3.8% raise in pay and a 1.8% increase in inflation.

Salaries in the Asia/Pacific region are expected to vary. Countries where the economies have been strong will see higher pay raises. For example, India and China can expect pay increases of approximately 11.3% and 7.8% respectively. Inflation in the two countries is forecast to be quite low at 4% for India and 3% for China.

The Canadian Commercial Workers Industry Pension Plan’s (CCWIPP)investment in a Hilton property in Kingston, Jamaica is being probed by the Financial Services Commission of Ontario (FSCO). Regulators are looking into whether CCWIPP may have breached regulations set out under Canadian law governing pensions. Specifically, regulators are probing into a series of arrangements CCWIPP made to acquire real estate properties in Jamaica and the Bahamas. FSCO’s report states that “given the size of the plan’s investment in the Caribbean development, FSCO is concerned that the quantitative limits set out in sections nine and ten of the federal regulation have been violated.”

Joel Kranc