In August, the funded status of a typical pension plan improved on both the solvency basis and accounting basis.The representative pension plan portfolio increased by 0.8 per cent in August, driven by good performance of global and Canadian equity markets.
The global developed and emerging equity markets index returned 1.5 per cent in Canadian dollar terms and Canadian equities finished the month with a return of 3.1 per cent.
Short-term Government of Canada bond yields increased by approximately 0.10 per cent and long-term Government of Canada bond yields increased by approximately 0.10 per cent over the month. Corporate bond credit spreads reduced by 0.02 per cent for short-term bonds and increased by 0.04 per cent for long-term bonds.
Market expectations for long-term inflation (the break-even inflation rate) were approximately 2.20 per cent at the end of August, which represents an increase of 0.11 per cent since the end of July.
“For DB pension plan sponsors, the key message has been consistent for some time: funded positions are generally strong, but that strength should not lead to complacency. Underlying pension risks still need to be well understood, managed and monitored. In August, the typical pension plan’s funded position improved on both a solvency and accounting basis, helped by positive equity market returns and a modest increase in long term Government of Canada bond yields since July,” says Amy Pun, Associate Partner in TELUS Health’s Retirement & Benefits Solutions practice.
“At the same time, the escalation in U.S.–Canada trade tensions, including new U.S. tariffs on Canadian goods and Canada’s announced countermeasures, introduced renewed uncertainty for businesses, consumers and investors. For DB pension plans, this type of uncertainty can affect both sides of the balance sheet: tariffs may put pressure on inflation, business costs, and growth expectations which can affect the returns earned by plan assets and can also influence long-term interest rates, which would impact DB liabilities. For sponsors, August reinforces the importance of continuing to monitor key risks — including interest rate, inflation, investment and geopolitical risks — and ensuring that their pension risk management framework remains appropriate as conditions evolve.”