Average Canadian DB plan solvency ratio rises to 108% in first quarter: report

While investment returns were negative for most DB plans during the quarter, bond yields rose between 75 and 134 basis points at various durations, reducing plan liabilities and offsetting the reduction in plan assets by negative returns, the report notes.

Read: Majority of solvency ratios for defined benefit pension plans in Canada are above 100%: report

Three-quarters (75%) of pension plans are estimated to be in a surplus position on a solvency basis, up from 61% at the end of 2021. Additionally, 15% of plans are estimated to have solvency ratios between 90 and 100%, while 6% have solvency ratios between 80 and 90% and 4% have solvency ratios below 80%.

The report also found that a typical balanced retirement portfolio would have posted a negative return of 7.1% during the first quarter of 2022, as global stock markets sold off sharply and the US stock market briefly entered. in correction territory in February, under the effect of monetary tightening and the uncertainty linked to the invasion of Ukraine by Russia. In addition, the report notes that equity volatility is high as investors fear that the crisis and sanctions against Russia will lead to a significant reduction in the global supply of energy and agricultural raw materials.

Read: North American markets plummet as Russian forces advance on Ukraine

Canadian bond prices declined significantly during the quarter, as universe and long-term bond yields rose dramatically by 110 basis points and 85 basis points, respectively.

Additionally, a new report from Aon revealed that the overall funded ratio of Canadian pension plans in the S&P/TSX Composite Index fell from 96.9% to 100.5% in the first quarter of 2022.

He also found that the yield on long-term Government of Canada bonds rose by 69 basis points from the rate at the end of the last quarter and that credit spreads widened by 25 basis points, which led to an increase in the interest rates used to value pension plan liabilities (3.71%, compared to 2.77%). Pension assets fell 7.2% in the quarter, the report notes.

“There has been considerable volatility over the past quarter and mounting inflationary pressures that have impacted markets,” Nathan LaPierre, wealth management solutions partner at Aon, said in a press release. “Nevertheless, the rise in nominal interest rates has probably had a positive effect on the funding of pension plans. Plan sponsors should consider taking steps to lock in the gains they have recently made by reducing plan risk through asset allocation or liability settlement options, preparing them for future volatility. .

Read: Pensions able to offload risks: expert

Sallie R. Loera