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May 2, 2022

TAX TREATMENT OF TARGET DATE FUNDS UNFAIR

The tax treatment of target date funds is unfair, says the Pension Investment Association of Canada (PIAC). In a letter to the Department of Finance Canada, it says target date funds are widely used by Canadians saving for retirement, often through employer sponsored pension plans, as these funds allow for a gradual change in the risk profile with the increase in age of the investor. All target date funds have a terminal fund which holds the merged assets of the existing retirement funds. This is done to provide economies of scale to allow the fund to be invested optimally and to keep the management expense ratios low for retirees invested in the funds as they draw down on their retirement savings. However, current tax rules do not permit tax-free mergers of a target date series into a terminal fund, even though the investment content of both funds is the same. Eliminating taxation of capital gains in situations where the target date fund provider merges two funds with essentially identical holdings would be consistent with many forms of tax-free mergers and spin-offs permitted for public corporations in Canada. PIAC would like to ensure that taxation is fair to all investors and that these financially responsible Canadians benefit from the pooling of assets and the efficiencies that merging maturing target date funds creates. This keeps costs down for all investors and puts more income in the hands of our Canadian retirees. It urges Finance Canada to allow for tax-free mergers of maturing target date funds.

May 2, 2022

FSRA CHANGES WHISTLE-BLOWER PROGRAM

The Financial Services Regulatory Authority of Ontario (FSRA) is introducing a new whistle-blower program to help identify misconduct in the non-securities financial services and pensions sectors. The initiative will offer enhanced protections for those willing to come forward. It says whistle-blowers are a valuable source of information and this program and new guidance will assist individuals and entities who want to come forward by helping determine who qualifies as a whistle-blower and who will receive protection. The program will apply to any individual or entity who comes forward in good faith with valuable, timely, and non-public (i.e., insider) information related to an alleged or intended contravention in any of the sectors FSRA regulates. The program protects the identities of whistle-blowers from disclosure as well as reprisals (i.e., being fired, demoted, or disciplined, etc.) and from liability in civil proceedings.

May 2, 2022

TAX CREDIT OFFERED FOR FERTILITY TREATMENTS

The government of Nova Scotia has announced a refundable tax credit equal to 40 per cent of the costs of fertility treatments or surrogacy-related medical expenses provided by a Nova Scotia-licensed medical practitioner or infertility treatment clinic, says an Eckler ‘GroupNews.’ This makes it the first province in Canada to introduce support of this kind for residents. The ‘Nova Scotia Fertility and Surrogacy Rebate’ was first proposed in the 2022/2023 provincial budget. The rebate will allow eligible Nova Scotians to claim costs up to $20,000 annually, which will result in a maximum annual tax credit of $8,000. There is no limit on the number of treatments an individual can claim. If the medically needed services are not offered in Nova Scotia, a licensed practitioner in Nova Scotia can refer a patient elsewhere. The ‘GroupNews’ says individuals struggling with infertility issues can experience a significant negative impact on their mental health and work productivity. The significant costs for fertility treatments make it unlikely that many private plans would provide complete coverage so the tax rebate will provide some relief for plan members who incur these costs.

May 2, 2022

PLANS END IN THE RED

Canadian defined benefit pension plans closed the first quarter of 2022 in the red with a median return of -5.5 per cent, the weakest quarterly return since Q1 2020 (-7.1 per cent) says the ‘RBC Investor & Treasury Services All Plan Universe.’ Global equity markets experienced significant volatility during the quarter, with the MSCI World Index returning -6.2 per cent over that period. Concerns over higher interest rates and further disruptions to global supply chains resulted in growth style stocks (MSCI World Growth -10.7 per cent) significantly underperforming value style stocks (MSCI World Value -1.8 per cent). Niki Zaphiratos, managing director, asset owners, at RBC Investor & Treasury Services, says, “The current geopolitical risk has compounded the existing headwinds facing pension plans and we are now looking at the possibility of a sharp increase in interest rates which could lead to the devaluation of risky assets. Plan sponsors will need to tread carefully in the months ahead.”

May 2, 2022

MOVEMENT GOES TOWARDS LESS RISKY MARKETS

Large institutional investors are moving toward less risky markets and strategies, says a report from State Street and the International Forum of Sovereign Wealth Funds. It says institutional investors’ risk appetite turned negative in February, reaching its lowest level in two years after displaying an overall risk aversion in 2021, as measured by State Street’s ‘Behavioral Risk Scorecard.’ Risk-off moves have been seen across equity, fixed income, foreign exchange, and asset allocation decisions. “Following a period of opportunistic rebalancing and selective risk-taking during 2020, the past year has seen institutional investors moving towards safer assets and markets,” says Neill Clark, head of State Street Associates, Europe, the Middle East, and Africa “Their asset allocation decisions suggest they are no longer adding to their equity exposure ‒ which they had been doing since the first quarter of 2020 ‒ and instead, are adding to their fixed income and cash balances.”