In January, the funded status of a typical pension plan increased on both a solvency basis and on an accounting basis.
The investment return for a representative pension plan portfolio was 2.8 per cent for the month, driven by strong performances across both bond and equity markets.
The global developed and emerging equity markets index, the MSCI ACWI, returned 4.1 per cent in Canadian dollar terms. The Canadian equity index, the S&P/TSX Composite, finished the month with a return of 3.5 per cent.
Short-term Government of Canada bond yields declined by approximately 0.27 per cent while the long-term Government of Canada bond yields decreased by approximately 0.09 per cent over the month of January. Meanwhile, credit spreads for corporate bonds slightly widened across all maturities in January.
Market expectations for long-term inflation (the break-even inflation rate) were approximately 1.89per cent at the end of January, increasing by 0.07 per cent since the end of December.
“The start of 2025 should serve as a reminder of the many risks and uncertainties potentially faced by Canadian DB pension plan sponsors” says Gavin Benjamin, Partner in TELUS Health’s Consulting team.
“The release in January of the artificial intelligence company DeepSeek’s latest AI model caused significant volatility in equity markets and highlighted the concentration risk that exists in the U.S. market. Another example of the risks faced by plan sponsors is the potential for tariffs of up to 25 per cent on imports to the U.S. from Mexico and Canada, and what a trade conflict could mean for both the sponsor’s business and their pension plan funded position. It is noteworthy that the Bank of Canada acknowledged that the projections in their January Monetary Policy Report are subject to more than usual uncertainty due to the current environment. The possible warning signs from early 2025 emphasize the importance of pension plan administrators developing and maintaining a holistic pension risk management framework.
Developing and utilizing a risk management framework ensures that material risks to the pension plan are identified, evaluated, managed and monitored, so that the plan is sustainable over both the short and long terms. This includes recognizing from a practical perspective which risks can and cannot be managed. Risks that cannot be managed should also be evaluated and monitored so that any adverse impacts can be mitigated.”
Click here to read the January report.