Brexit deals a blow to Canadian pension plans

By Mathieu Carbasse | July 04 2016 01:31PM

For most pension plans, Brexit resulted in lower solvency ratios for the first half of 2016. The solvency ratio of a typical Canadian pension plan has fallen by about 3% since result of the British vote was announced.

Solvency ratios down

As of June 27, 2016 the median solvency ratio of Mercer's pension clients stood at 82%, which is a three point drop from the 85% ratio reported at the beginning of the year and just before the Brexit vote.

The Mercer Pension Health Index, which calculates the solvency ratio of a hypothetical pension plan, also declined during the first half of the year: it now stands at 88%, down from the 93% reported at the beginning of 2016.

Increased volatility for pension plans

"The Brexit vote has obviously led to geopolitical and economic uncertainty, which will likely result in increased volatility for pension plans in the months and even years to come," says Hubert Tremblay, a principal in Mercer's retirement practice. "Plan sponsors should make sure they are able to cope with the amount of risk to which they are currently exposed in their pension plans."

The decline in the solvency level of pension plans in the first half of 2016 can be attributed to falling long-term bond yields, poor global stock performance, and the increase in the Canadian dollar.