Professional services firms, Aon plc and Mercer both released their most recent reports about the financial positions held by defined benefit (DB) pension plans in Canada.
Aon says the aggregate funded ratio for Canadian pension plans in the S&P/TSX Composite Index decreased from 100.5 per cent to 97.2 per cent in the third quarter of 2022. The Aon Pension Risk Tracker calculates the aggregate funded position on an accounting basis, for companies in the index with DB plans.
Mercer meanwhile says DB pension plans in its pension database (the firm tracks nearly 500 pension plans across Canada), saw solvency ratios decline. The Mercer Pension Health Pulse, which tracks the median solvency ratio of those plans, decreased from 109 per cent at June 30 to 108 per cent as of September 30, 2022.
Of the plans in Mercer’s database, 72 per cent are estimated to be in a surplus solvency position, 17 per cent of plans have solvency ratios between 90 and 100 per cent, five per cent have solvency ratios between 80 and 90 per cent and six per cent have solvency ratios below 80 per cent.
Aon says pension assets lost 0.1 per cent over the third quarter, bond yields decreased, and credit spreads narrowed, resulting in a reversal of the increase in funded positions which occurred in the first half of 2022. The sentiment is echoed by Mercer which says negative investment returns and lower long-term bond yields have led to a slight decline in pension plans’ performance.
Both firms say pension plans should expect continued volatility going forward.