In January, the funded status of a typical pension plan increased on a solvency basis but decreased on an accounting basis.
The representative pension plan portfolio returned 1.2% in January, driven by strong performance across both bond and equity markets.
Short-term Government of Canada bond yields decreased by approximately 0.02% and long-term Government of Canada bond yields increased by approximately 0.03% over the month. Corporate bond credit spreads tightened, narrowing by 0.02% for short-term bonds and 0.07% for long-term bonds.
“With most DB pension plans still well-funded, we expect the continuation of de-risking activity in 2026 as plan sponsors seek to protect the gains their plans have benefited from in recent years. One of the key approaches to de-risking is to transfer risk to an insurance company through the purchase of a group annuity for all or a portion of a pension plan’s obligations” says Gavin Benjamin, Partner in TELUS Health’s Consulting team.
“An observation regarding the Canadian group annuity market is that historically the premium that the plan had to pay the insurer in order to transact was usually larger than the accounting obligations that the plan sponsor was holding on their corporate balance sheet for the liabilities being annuitized. This sometimes created a significant settlement loss that the plan sponsor had to recognize immediately in their financial statements. However, over the past two to three years the gap between annuity premiums and accounting liabilities has narrowed, and in some cases plan sponsors have been able to transact at a cost that is less than the accounting liabilities. This speaks to the increasing competitiveness of group annuity pricing over time, which is a benefit to a plan sponsor considering de-risking through a group annuity purchase, whether or not the sponsor’s organization is sensitive to the accounting effect of the transaction.”