In May, the funded status of a typical pension plan improved on a solvency basis and remained level on an accounting basis. The representative pension plan portfolio returned 3.5 per cent in May, driven by strong performance across equity and bond markets.
The global developed and emerging equity markets index returned 6.5 per cent in Canadian dollar terms and Canadian equities finished the month with a return of 2.2 per cent.
Short-term Government of Canada bond yields decreased by approximately 0.19 per cent and long-term Government of Canada bond yields decreased by approximately 0.14 per cent over the month. Corporate bond credit spreads decreased by 0.03 per cent for short-term bonds and increased by 0.01 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 May, which represents a slight decrease of 0.02 per cent since the end of April
“May was a positive month for pension plan assets, with strong equity and bond market returns supporting overall financial positions, although lower Government of Canada bond yields put slight upward pressure on solvency liabilities,” says Amy Pun, Associate Partner in TELUS Health’s Retirement & Benefits Solutions practice.
“The representative pension plan portfolio returned 3.5 per cent in May, supported by continued strength in global and Canadian equities. Although declining Government of Canada bond yields increased solvency liabilities, this was more than offset by asset performance for the representative plan, while accounting positions remained broadly stable. Another development to watch is the Canadian Institute of Actuaries Actuarial Standards Board’s proposal to adopt an updated mortality table in the commuted value standards, which could increase commuted values and solvency liabilities. Plan sponsors may also face pressure to adopt new tables for accounting purposes, which could affect the accounting liabilities. For larger plans, this may be a good time to review actual mortality experience against the updated tables, while smaller plans may wish to assess with their actuary the potential impact of adopting the new basis for funding, commuted values and accounting purposes.