The restrictions on pension plans buying income trusts announced in the federal budget is likely to be so controversial that the policy may not be set in stone says Raymond James analyst Don Ogden.

Tuesday’s federal budget introduced a 1% limit on registered pension plans’ holdings of business income trusts. It also restricts pensions from holding more than 5% of any single trust. The government is concerned that it could miss out on significant tax revenue if pensions pile into trusts once liability questions concerning these vehicles are finally resolved.

However, Ogden suggests in a research note that the decision will be met with strong resistance. “With respect to the pension ownership issue, as we have said about the market many times, it may not be over ’till it’s over,” he states.

“Pension managers are crying foul. The business trust sector has been an expanding area of the market. Raymond James trust analyst Nav Malik pegs the market cap of the business trusts at $45 billion. That represents a big opportunity cost to pension managers, so expect the lobbying of the pension industry to intensify. Perhaps they could point out the opportunity cost to MP pensions.”

For trust investors, the fear is that keeping this big potential source of demand out of the market will depress trust prices. “At first blush it looks like there wasn’t too much premium built into trust prices for the anticipated pension fund demand. The prices of business trusts could be fairly described as mixed in early trading Wednesday, pretty much in keeping with the rest of the market,” he says.

However, he suggests that inter-listed trusts could come under some pressure because of a separate tax rule change concerning foreign investors holding otherwise taxable Canadian property.