In August, the funded status of a typical pension plan experienced mixed results. On a solvency basis, it declined, but on an accounting basis, it improved. Investment returns for a representative pension plan portfolio showed a modest gain of 0.4 per cent, largely supported by positive results in Canadian equity and universe bond markets.
The Canadian equity index, the S&P/TSX Composite, posted a solid return of 1.2 per cent, while the MSCI ACWI (global developed and emerging equity markets index) remained flat, returning 0.0 per cent in Canadian dollar terms. Government bond yields shifted during the month, with short-term yields falling by 0.13 per cent and long-term yields increasing by 0.04 per cent. Corporate bond credit spreads widened slightly during this period. Meanwhile, market expectations for long-term inflation decreased, with the break-even inflation rate falling by 0.08 per cent to 1.70 per cent at the end of August.
"While equity markets have generally performed well in 2024, volatility remains a concern," said Gavin Benjamin, Partner at TELUS Health’s Consulting practice. "The early August pullback in equities serves as a reminder of the growing influence of Artificial Intelligence (AI) on pension plans. Stocks of AI-related companies, like Nvidia, are having a significant impact on global equity returns and sentiment, often directly affecting pension fund performance."
Benjamin also noted AI's potential to enhance pension administration services and improve efficiency, but he warned of the associated operational risks, including data security concerns. "As AI’s impact on pension plans continues to grow, sponsors must evaluate both the opportunities and risks and integrate them into their governance processes."
Stay tuned for monthly updates and analysis as we continue tracking pension plan performance and market trends.
Click here to read the August report.