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CPP expansion won’t hurt wealth-management business, analysts say

Federal Finance Minister Bill Morneau is pictured at a news conference on the Canada Pension Plan in Vancouver, B.C., on June 20, 2016.

DARRYL DYCK/THE CANADIAN PRESS

The proposed expansion of the Canada Pension Plan will claim a portion of household income that might otherwise be channelled into private investments.

But the diversion of funds into a reformed CPP is not likely to be so great that it materially hurts the wealth management business, said Peter Routledge, an analyst at National Bank Financial.

"Much of those flows into wealth-management products tend to come from higher-net-worth people, and this just won't make a huge dent for them," Mr. Routledge said.

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On Monday, the federal Finance Minister and all but two of his provincial counterparts agreed on the most substantial increases in CPP benefits since the program was launched in 1966.

Canadians earning $55,000 a year would see their premiums rise by $7 a month when the changes start to take effect in 2019. That premium increase would rise to $34 a month by 2023.

"Those with higher incomes will see premiums rise quite a bit more when the coverage level expands between 2023 and 2025," Doug Porter, chief economist at BMO Nesbitt Burns, said in a note.

The higher premiums could mean that Canadians collectively rely less on private investment vehicles, said Ian Russell, president and chief executive of the Investment Industry Association of Canada.

"There will be some substitution, certainly, but it will be more from lower-income Canadians that have limited savings. For wealthier Canadians, they're not going to divert from their accounts with dealers. My industry is catering to accounts of $100,000 and more."

Clients with larger accounts can also get private-sector investment options tailored to their circumstances and risk appetite, which the CPP fund does not offer, Mr. Russell said.

Mr. Russell said he supports the changes, which go part of the way to addressing gaps in Canada's retirement framework.

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Joanne De Laurentiis, president and CEO the Investment Funds Institute of Canada, said the expansion of CPP is good public policy despite the modest costs it might represent to the investment industry.

"The most effective way to support those who are not on track for retirement is through targeted improvements that strengthen the existing system," she said in a release.

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About the Author
Investing reporter

Tim Shufelt joined the Globe and Mail in August, 2013, primarily to cover investments for Report on Business. Prior to the Globe, he worked as a staff writer at Canadian Business magazine, a business reporter at the Financial Post, and covered city news and courts for the Ottawa Citizen. More

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