The funded position of a typical Canadian defined benefit pension plan fell slightly on a solvency basis and rose on an accounting basis in May, according to a new report by Telus Health.
During the month, the solvency of the average DB plan dipped by 0.6 per cent, falling to 101.4 per cent. The balance sheet index, which is an indication of changes in the accounting funding level of an average plan since the start of the year, rose 0.3 per cent to 98.8 per cent.
The indexes are reset to 100 per cent at the beginning of each year, indicating an average plan’s solvency ratio’s improved by 1.4 per cent and its balance sheet’s declined by 1.2 per cent during the first five months of 2023.
Both indices are calculated using a benchmark portfolio composed of 50 per cent equities and 50 per cent fixed income. Investment returns from both sides of the portfolio were negative, with the benchmark portfolio declining two per cent during the month.
The equities component consists of 30 per cent Canadian equities in the S&P/TSX index and 70 per cent global equities in the MSCI ACWI index. The most significant losses stemmed from allocations to Canadian equities, which fell five per cent. Global equities declined by 0.9 per cent.
The fixed income portfolio includes a 48 per cent allocation to the FTSE TMX Canada universe and a 48 per cent allocation to the FTSE TMX Canada LT, as well as a four per cent allocation to 91-day treasury bills.
Returns for Canadian bond indices were also negative. Short-term Government of Canada bond yields increased by 0.57 per, significantly more than long-term yields, which rose 0.18 per cent. As a result, market expectations for long-term inflation — the break-even inflation rate — grew by 0.14 per cent to 1.77 per cent.