The average Canadian defined benefit pension plan posted a 1.6 per cent return during the second quarter of 2025, an increase from the 1.1 per cent return seen during the previous quarter, according to a new report by the Royal Bank of Canada Investor Services.
The report attributed the quarterly returns to a strong enough contribution from equities despite weakness in the fixed income markets.
Within equity markets, Canadian stocks returned nine per cent during the quarter, creating a year-to-date increase of 10.2 per cent and outperforming the TSX composite index. The report noted four of the five top-performing pension plans tracked had the highest exposure to Canadian equities during the quarter.
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However, fixed income posted a negative 1.2 per cent return in the quarter, underperforming the FTSE Canada universe bond index, which also declined by 0.6 per cent in the reporting period. The report attributed the downturn to a structural overweight in long-duration bonds, which fell 2.3 per cent amid rising long-term yields.
“We hope that mid-April marked the bottom for global equity markets, given the steady recovery since then, buoyed in Canada by a 90-day tariff pause and stable inflation,” said Isabelle Tremblay, director and segment lead of asset owner at RBC Investor Services, in a press release. “Momentum continued as tariff relief and Canadian government stability contributed to policy clarity and a more predictable domestic outlook.”
A separate report by Normandin Beaudry found that as at June 30, 2025, the average pension plan’s funded ratio stands at 130 per cent, representing a three per cent increase in Q2 and one per cent increase year-to-date.
Read: Canadian pension plans achieve 1.23% median return in Q1 2025: report
The average solvency ratio of pension plans reached 115 per cent, a four per cent increase for the quarter and one per cent for the year. The report noted the improved financial position for these investment organizations is due to higher-than-expected investment returns and a slight increase in discount rates.
The second quarter was a volatile period for investors with losses and rebounds in equities from the ongoing tariff saga caused by U.S. President Donald Trump, the report said. The Bank of Canada kept its key interest rate at 2.75 per cent for the second time in a row after seven cuts, continuing the gap between the U.S. Federal Reserve’s range of 4.25 per cent to 4.50 per cent.
“The interest rate gap between the two countries is contributing to maintaining a relatively high cost of hedging against fluctuations in the U.S. dollar relative to the Canadian dollar,” the report said.
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