Canadian Investment Review

Pension Solvency Hits Highest Level Since 2007

Written by Caroline Cakebread on Tuesday, April 11th, 2017 at 4:20 pm

water markThe median solvency ratio of Canadian defined benefit (DB) pension plans has hit the highest level since before the 2007 financial crisis, driven by rallying global equity markets according to new latest survey from Aon Hewitt. Pension health is looking better than it has in years as plan sponsors benefit from risk-seeking asset classes and relative stability in the bond markets.

Median solvency on April 1, 2017 stood at 96.7%, up nearly two percentage points from the beginning of the year. Meanwhile, almost 40% of plans were fully funded at quarter’s end, up four percentage points from Q4 2016.

Other key findings include:

  • 39.2% of plans were fully funded as of April 1, up from 35.2% as of Jan. 1, 2017.
    Pension assets increased during the quarter by 3.2%; in the fourth quarter of 2016, asset returns
  • were 7.2%.
    Among risk-seeking asset classes, emerging market equities performed the best in Q1, returning
  • 8%, while U.S. equities (+5.5%), international (MSCI EAFE) equities (+6.7%) and global (MSCI
  • World) stocks (+5.8%) also performed well.
    Domestic equities marked the worst performance among tracked stock indices, returning 2.4%
  • through the quarter.
    As yields declined marginally (Canada 10-year benchmark yield was down ~10 basis points), bond
  • returns were positive: FTSE Long Term Bonds returned 1.9%, while FTSE TMX Universe bonds
  • finished the quarter up by 1.2%.
    Alternative asset returns were marginally positive, with global real estate up 1.7% and infrastructure
  • up 5.7%.
    As bond yields declined, annuity purchase rates fell slightly through the quarter; however, the
  • resulting increase in pension liabilities was more than offset by positive asset returns.
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