The median solvency ratio for Canadian defined benefit pension plans dropped slightly in February as equity markets stalled, falling to 99.8 per cent from 101.3 per cent in January, according to Aon’s monthly survey.

January’s solvency ratio was the highest since 2002, noted the survey. However, nearly half (49.6 per cent) of plans were more than fully funded at March 1, 2018, up 3.1 percentage points from the previous month.

Read: Strong equity markets help to boost DB solvency rates in 2017

With major domestic and international equity markets stalling, the gross return for pension assets in February was -0.7 per cent. Global and U.S. equities remained slightly on the positive side, posting 0.6 and 0.1 per cent, respectively, while emerging markets dropped by 0.4 per cent and Canadian equities declined by three per cent. Global infrastructure and real estate both had a rough month, declining one and 2.6 per cent, respectively. Fixed income returns were mixed during February, with falling bond yields effectively increasing pension liabilities.

“February demonstrated just how delicate the markets’ Goldilocks moment might be,” said Ian Struthers, partner and investment consulting practice director at Aon, in a news release. “Pensions have benefited from rising equity valuations and higher yields, but that trend quickly reversed in February.

Read: DB pension solvency reaches highest level in 15 years: Aon Hewitt

“It’s too early to tell whether the tide has truly turned, but in a rising rate environment and with growing trade-related concerns over the global expansion, we expect more volatility in stocks and fixed income going forward,” he said. 

“The good news is that pension solvency remains very strong, so for those plan sponsors who haven’t done so already, they are still in a position to take action towards mitigating risk and seeking stronger diversification.” 

Copyright © 2018 Transcontinental Media G.P. Originally published on benefitscanada.com

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