Pension solvency rates improve

par Andrew Rickard | November 07 2016 11:30AM

Despite falling long bond yields, strong returns in the major equity markets helped to improve the health of defined benefit (DB) pension plans in Canada. However, 83% of plans are still in a shortfall position.

In its monthly survey of Canadian DB plans, Aon Hewitt measures assets over liabilities to calculate a pension plan’s solvency funded ratio. The benefits consulting firm found that the median ratio of the 437 plans it administers was 86.1% at the end of October, up from the 84.6% recorded at the end of the previous month.

This improvement was due mostly to equity investments in domestic, US, and emerging markets which were up by 0.6%, 0.1%, and 2.2% respectively. These results were dragged down by price declines in long-term bonds, which fell by 2.3%.

The survey reveals that the number of plans of in a solvency shortfall has also declined. At the end of October 83% of the plans were in a shortfall position, down from the 89% that were running behind at the start of 2016. In recent years Aon’s research shows that DB plans were at their healthiest in 2002, when only 45% reported a shortfall and the median solvency ratio was 102%.