Amid geopolitical conflict and market volatility, the volume of risk transfers among Canadian defined benefit pension plan sponsors is down roughly 60 per cent in the first half of 2025 compared to the same period last year, says Brent Simmons, senior vice-president and head of DB solutions at Sun Life Financial Inc.
“The pullback that we’re seeing this year is greater than the impact that we would have seen during the early part of the pandemic or the [2008/09] financial crisis. The market last year was about $11 billion and this year, based on what we know right now, the market may be about half that size.”
According to a new report by Sun Life, the dip in the risk transfer market from 2007 to 2008 was about 14 per cent or $170 million. Similarly, the dip in the market from 2019 to 2020 was 15 per cent or $800 million.
Simmons notes this decline in risk transfers is largely due to plan sponsors focusing on the immediate needs of their business during a challenging economy.
“Taking risk off the table would make a lot of sense right now, as would securing those benefits for members. But the one ingredient that we’re missing this year is the time and attention of management teams.
“[De-risking a pension plan] is a voluntary project and what we’re hearing is employers are [paying closer attention] to their main business — they don’t have that extra time to undertake additional projects.”
Read: Pension risk transfer sales increase to $5.2BN in Q4 2024: report
The report noted as of March 31, 2025, the yield on non-indexed annuities (4.59 per cent) is above that of a duration-equivalent passive corporate bond portfolio (4.41 per cent), even before adjusting for risk and expenses.
It also found risk transfers among plan sponsors with benefits linked to the consumer price index were down roughly 80 per cent compared to 2024. Simmons notes these plan sponsors typically turn to real-return bonds in their de-risking strategies and, despite the federal government’s 2023 cessation on the issuance of these bonds, there are still bonds available for purchase.
“We traditionally have looked at the second half of the year as quite busy [for pension risk transfers]. . . . With all the uncertainty that we’ve seen [this year], taking risks off the table could mean one less thing for large plan sponsors to think about.”
Read: DB pension plan sponsors facing “bottleneck” in annuities market: expert