By several measures, Canadian defined benefit (DB) pension plans are in good shape at the end of the third quarter of 2024. Two firms weighing in on the matter are Aon plc and Mercer Canada.

According to the Aon Pension Risk Tracker, the aggregate funded ratio for Canadian pension plans in the S&P/TSX Composite Index was 107 per cent at the end of September, up slightly from the 106.9 per cent reported at the end of the second quarter.

“The Aon Pension Risk Tracker calculates the aggregate funded position on an accounting basis for companies in the S&P/TSX Composite Index with DB plans,” they state. At the end of the third quarter, September 30, 2024, pension assets gained 5.1 per cent. According to a report from Mercer, Canadian DB pension plans slightly improve as market gains offset interest rate declines, a typical balanced portfolio would have posted a return of 6.2 per cent during the same period.

Interest rate risks 

“The long-term Government of Canada bond yield decreased 26 basis points (bps) relative to the previous quarter rate and credit spreads narrowed by three bps. This combination resulted in a decrease in the discount rate from 4.77 per cent to 4.48 per cent,” Aon states. “Plan sponsors should ensure that their plans are well hedged against interest rate risks.” 

Mercer, meanwhile, describes the backdrop of volatility (overall equity markets performed well with Canadian equities leading the way) saying the overall financial health of Canadian DB plans slightly improved during the quarter. The Mercer Pension Health Pulse found the median solvency ratio of the DB pension plans in Mercer’s pension database of 450 pension plans across Canada increased from 121 per cent on June 28 to 122 per cent at September 30. “Strong asset performance is encouraging, the decline in interest rates and subsequent rise in liabilities demonstrates the need for vigilant risk management,” they write.