Canadian pension plan solvency reaches highest level in 15 years

By The IJ Staff | November 06 2017 11:30AM

Photo: Freepik

Canadian defined benefit pension plan solvency hit 100.7 per cent in October, says an Aon survey released Nov. 6. This is up 1.4 percentage points from September and the highest level since 2002 when the ratio stood at 102 per cent.

The Aon Median Solvency Ratio survey measures plans’ assets over liabilities to calculate their solvency funded ratio. It tracks the performance of Aon Hewitt-administered defined benefit pension plans from the public, semi-public and private sectors.

De-risking strategies

The equity market rally led to the solvency ratio improvement in October, says Ian Struthers, Partner, Investment Consulting Practice Director, Aon Hewitt. “Over the last few months, a rising interest-rate environment and strong stock returns have meant that pension assets are growing while liabilities are lower due to higher bond yields. It’s a Goldilocks moment for pensions, but plan sponsors know it can’t last forever. That’s why we’re seeing more of them leverage their plans’ exceptional financial health to employ de-risking strategies, increase their interest rate hedge ratios and thoroughly review their approach to diversification.”

More than half of plans fully funded

The survey found that 51.5 per cent of plans were more than fully funded as of Nov. 1. This is an increase of 3.8 per cent over the previous month.

Gross pension asset return was 3.3 per cent in CAD terms, as all equity classes had positive returns, says the Aon survey.