June 21, 2016 / 3:38 PM / in a year

Canada pension fund says expansion won't change strategy

TORONTO (Reuters) - The Canada Pension Plan Investment Board, which manages the assets of the country’s national pension fund, said on Tuesday it does not expect a proposed expansion to the plan to have a significant impact on its overall investment strategy.

Canada’s federal government and provinces agreed in principle on Monday to support a compromise plan to expand the national pension plan, with premiums raised moderately over time to provide greater payouts for pensioners.

“Modest changes to the plan along a multi-year transition phase - as contemplated - are unlikely to have a significant impact on the overall investment-related dimensions of the program,” a CPPIB spokesman said.

The CPPIB was created in 1997 to manage the CPP’s money and has grown rapidly, directly investments around the world in assets such as real estate and infrastructure, as well as equities and bonds.

It had C$279 billion ($217.75 billion) in assets under management at the end of March and has forecast that will grow to C$300 billion by 2020 and C$500 billion by 2030. It said on Tuesday it was too early to say how those projections will change.

“It is premature to assess any potential implications related to the Reserve Fund entrusted to CPPIB to manage over multiple generations,” the spokesman said.

The fund last year generated more in investment income, C$9.1 billion in fiscal 2016, than it took in from contributions, which totaled C$5.2 billion.

“Even without any enhancement, the fund has been and will continue to be on a path of continuing growth over an exceptionally long period,” the spokesman said.

The proposed changes, if formally approved by the provinces, would start in 2019 and be phased in over seven years, according to the plan signed by eight provincial finance ministers and federal Finance Minister Bill Morneau.

Like other governments around the world, Canada faces a challenge to provide for its aging population. The CPP has been deemed by some experts as insufficient to provide enough income in retirement without being supplemented by a workplace pension.

Under the current plan, both employers and employees contribute 4.95 percent of income up to a C$54,900 cap. The maximum payout is C$13,110 annually, lower than that of other wealthy nations.

With the new deal, the earnings cap would rise to C$82,700 by 2025, with the income replacement level increasing to one-third of the cap.

Reporting by Matt Scuffham; Editing by Chizu Nomiyama and Dan Grebler

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