Global professional services firm, Aon plc says the aggregate funded ratio of Canadian pension plans for companies in the S&P/TSX Composite Index increased from 100.5 to 101.5 per cent during the past three months, according to the firm’s Pension Risk Tracker. The number sat at 96.9 per cent at the beginning of the year.
The tracker calculates the aggregate funded position on an accounting basis for companies in the index with defined benefit plans. The firm’s Risk Analyzer platform is also used for measuring plans related to S&P 500 companies in the United States and a for a number of indices in the United Kingdom. “Moving to this platform in Canada allows Aon to take a global view of pension plan funded status,” they write.
Among the findings published from the second quarter of 2022, they say pension assets lost 11.9 per cent and the interest rates used to value pension liabilities rose from 3.78 per cent to 4.93 per cent. “Given a majority of plans in Canada are still exposed to interest rate risk, the decrease in pension liability caused by increasing interest rates offset the negative effect of asset returns on the funded status of the plans. However, given the volatility, individual pension plans’ results will vary significantly, depending on asset allocation,” they add.
Aon’s wealth solutions partner, Nathan LaPierre says “the rapid rise of interest rates has lowered liabilities, offsetting the poor asset performance over the quarter. Plan sponsors are likely to continue de-risking activities to further protect plans’ funded positions as they navigate volatility.”