Thanks to positive performance in both the bond and equity markets, the funded status of a typical pension plan increased on a solvency basis and on an accounting basis in the second last month of 2024, according to TELUS Health. The investment return for a representative pension plan portfolio was 4.2 per cent during the month of November.
The pension indices published by TELUS Health are designed to provide an early sign of the challenges and opportunities to come for plan sponsors and administrators. TELUS’ indices in November 2024 were up across the board relative to their starting positions in January 2024.
TELUS Health’s solvency index was 111.4 (all indices were set at 100 as of January 1, 2024), the annuity proxy index was 103.3 (of all the indices, this remained the lowest throughout the year, dipping below 100 for six months in the first and early second half of 2024), the commuted value index, which only dipped below 100 in May and June last year, sat at 107.4 as of November 30, the accounting index was 110.6 and the plan asset index sat at 116.
“The increase in the funded ratio of a typical pension plan of more than 10 per cent on both a solvency and accounting basis during the first 11 months of 2024 may come as a surprise to some, especially since the Bank of Canada has decreased its overnight rate by 1.25 per cent so far this year,” says Gavin Benjamin, partner with TELUS Health’s consulting operations. “However, there are two key factors that help explain this positive outcome. First pension plan assets have performed well so far in 2024. The investment return of the typical pension plan’s assets exceeded 15 per cent during the first 11 months of the year.” He adds that while short term interest rates have decreased significantly, long-term rates have been less affected.
“The effects of financial market changes on the financial position of a pension plan can be complex and may also be very plan specific,” he adds. “Frequent monitoring of a plan’s funded status can help a plan sponsor see through the complexities and better manage the pension risks and opportunities that will emerge over time.”