In March, for the second consecutive month, the funded status of a typical pension plan decreased on a solvency basis but increased on an accounting basis. The representative pension plan portfolio produced a negative return of 3.8 per cent in March, driven by weaker performance across both bond and, more notably, equity markets.
The global developed and emerging equity markets index returned a loss of 5.0 per cent in Canadian dollar terms and Canadian equities finished the month with a loss of 3.4 per cent.
Short-term Government of Canada bond yields increased by approximately 0.43 per cent and long-term Government of Canada bond yields increased by approximately 0.25 per cent over the month. Corporate bond credit spreads increased by 0.05 per cent for short-term bonds and 0.07 per cent for long-term bonds.
Market expectations for long-term inflation (the break-even inflation rate) were approximately 2.05 per cent at the end of March, which represents a slight increase of 0.02% since the end of February.
“Pension plan assets gave up their year-to-date gains over March, driven by a sell-off across global equity markets” says Ryan Yeo, Principal. “However, funded positions have remained relatively stable as rising interest rates have reduced liabilities to offset asset losses. Geopolitical tensions remain at the forefront as global markets try to predict what comes next.”
Rather than trying to predict the future, plans will be best served by staying the course. The recent sell-off should not have changed much for pension plans. Those who are looking at options for de-risking, whether through a change in asset mix or annuitization, are still in the position to do so. However, ongoing monitoring continues to be of importance as we have likely not seen the end of short-term volatility.”
Having a plan of action in different scenarios can help take the emotion out of decision making and minimize delays. While some may prefer to have non-prescriptive policies, a comprehensive framework can have many benefits. Sponsors, trustees and administrators should work with their advisors to include the right level of detail in their governance policies. An example of this could be identifying targets or ranges where different surplus utilization actions may be taken.”