In May, the funded status of a typical pension plan increased on both a solvency basis and on an accounting basis.
The representative pension plan portfolio returned 2.7 per cent for the month, as equity markets rebounded following months of decline.
The global developed and emerging equity markets index returned 5.3 per cent in Canadian dollar terms and Canadian equities finished the month with a return of 5.6 per cent.
Short-term Government of Canada bond yields increased by 0.12 per cent while the long-term Government of Canada bond yields increased by approximately 0.05 per cent over the month of May. Meanwhile, corporate bond credit spreads tightened across all durations, declining by 0.10 per cent to 0.15 per cent.
Market expectations for long-term inflation (the break-even inflation rate) were approximately 1.88 per cent at the end of May, which represents an increase of 0.06 per cent since the end of April.
"The resilience of Canadian pension plans amid economic headwinds is both encouraging and cautionary," says Andrea Knoll, Partner and West Region Lead of TELUS Health's Consulting team. "During the month of May, the funded ratio of the typical pension plan rebounded by 2.9 per cent, a notable improvement that might instill a sense of optimism. However, this positive development should be viewed through the lens of broader economic challenges facing Canada, including forecasted slow growth and market uncertainty.
The volatility of solvency funded ratios in 2025, including swings of more than 9 per cent during a period of less than three months, serves as a stark reminder that pension plan health can change rapidly, influenced by a myriad of economic factors. To navigate this complex landscape, plan sponsors should focus on three key areas to protect pension plan health and sustainability:
- Enhanced Risk Management: Implement comprehensive tools for frequent, even daily, monitoring of plan financials. This allows for early detection of potential issues and enables quicker, more informed decision-making. Regularly stress-test your plans against various economic scenarios, including recessions and market downturns, to identify vulnerabilities and develop targeted mitigation strategies.
- Strategic Asset Allocation: In uncertain times, diversification is crucial. Review and adjust your asset allocation in light of your plan’s specific circumstances and long-term objectives. For ongoing plans, this may involve considering alternative investments to enhance returns and manage risk. However, for closed plans a liability-driven investment strategy may be more appropriate to better match assets with long-term pension obligations. The key is to ensure your allocation is resilient against potential economic shocks while aligned with your plan’s ultimate destination.
- Stakeholder Communication: Maintain transparent and regular communication with plan members and other stakeholders. Clearly explain the plan's current status, risk management efforts, and any strategic changes. This proactive approach can help manage expectations and build confidence, even in unpredictable economic conditions.
In the face of economic uncertainty, these proactive measures are not just best practices – they're essential safeguards for the long-term sustainability of pension benefits and the financial well-being of plan members."
Click here to read the May report.