Solvency positions of DB plans rebound
The solvency positions of Canadian defined benefit pension plans have rebounded from March 31 when financial markets collapsed because of the COVID-19 pandemic.
According to the second-quarter Median Solvency Ratio Survey by Aon plc, solvency positions gained 6.3 percentage points.
"Equity markets have experienced a spectacular and unexpected recovery in Q2 despite the biggest economic downturn in recent history," said Erwan Pirou, Aon’s Canada Chief Investment Officer. "Rebalancing portfolios at the end of March proved to be a good strategy and we would continue to recommend this strategy to crystalize the equity market gains."
Pirou said some opportunities in mainstream public markets created by the dislocations in Q1 have already disappeared – but are likely to come back. “Therefore it makes sense to have an opportunistic approach to capture them,” said Pirou. "We continue to see opportunities in private and less liquid markets, while long bond yields are at an all-time record low on the back of central banks’ intervention. Many clients may want to review how much duration they have."
William da Silva, Aon’s Canadian practice director, Retirement Solutions, said plans have almost come full circle since January 1. “It's almost like we are getting a 'do-over'. More than ever, it's time to assess risk, evaluate options to manage funded status volatility and act before another event hits your plan."