Canadian pension plans still in the red

By Mathieu Carbasse | November 25 2015 11:46AM

Volatility in global equity markets and economic uncertainty have continued into the third quarter, contributing to another period of negative growth for Canadian pension plans. According to the RBC Investor & Treasury ServicesAll Plan Universe, which is the most comprehensive measure of Canadian pension plans and tracks $650 billion of assets, this kind of decline has not been seen since 2009.

Assets held in Canadian defined benefit pension plans fell by 2% in the third quarter, bringing year-to-date annual growth to 2.5%. During the third quarter, global equity markets posted some of their worst returns in four years. As was the case in 2009, general market turbulence was the main cause of the consecutive quarterly decline of pension plan assets. However, the recovery in the following quarter resulted in a 9.5% increase in plan assets.

"The sharp correction of the Chinese stock market in August put the focus squarely on the possibility of a hard landing for China in particular, and stalled global growth in general. These concerns were reflected in all the major equity indices and continue to draw a watchful eye from central banks around the globe," explains David Heisz, chief executive officer of RBC Investor Services Trust. "That said, despite the volatility over the past few quarters, plan returns are 2.5 per cent year-to-date which is respectable in light of prevailing market conditions and thanks in part to weakness in the Canadian dollar."

It is important to note that the Canadian dollar fell by 6.9% against the US dollar, which helped to offset some of the Canadian pension plans' investment losses in foreign securities. While Canadian equities, particularly those in the natural resources sector, have continued to lose ground, Canadian bonds ended the quarter more or less flat despite high volatility.