Pension indices measured by TELUS Health show that the funded status of a typical pension plan increased on a solvency basis and on an accounting basis in October. The two indices (100 on January 1 of the year) currently sit at 108.4, up from 107.6 in September and at 109.4, up from 108.7 the previous month, respectively.
The investment return for a representative pension plan portfolio declined 0.2 per cent during the month, primarily due to negative bond market performance. The key statistics, they say, provide an early indicator of the challenges and opportunities available to plan sponsors and administrators.
“Pension funding levels showed modest improvement in October with slight increases in both solvency and accounting funded positions. For a typical pension plan, funding levels were approximately eight to nine per cent higher than at the start of the year,” they write.
Interest rates
Significant interest rate cuts, meanwhile, could also have notable implications for pension plans, they add. “While lower interest rates typically lead to increased plan liabilities, the impact on overall funded status will depend on how equity markets and other asset classes, as well as long-term bond yields, respond to this monetary policy shift.”
The developments, they conclude, underscore the importance of scenario planning. “Plan sponsors would be wise to stress-test their portfolios against various economic outcomes, including scenarios of prolonged low interest rates or sudden market corrections.”
