The value of a typical Canadian defined benefit pension plan’s assets improved in July, according to LifeWorks Inc.’s latest monthly report.

An investment portfolio designed to mimic typical Canadian DB portfolios saw its assets grow by 5.4 per cent over the month. The value of the benchmark portfolio, which is composed of 50 per cent equities and 50 per cent fixed income, remains 10.8 per cent lower than at the beginning of the year.

The overall returns were led by the strong performance of emerging market equities, with the MSCI ACWI rising 6.3 per cent over the month. Canadian equities generated more moderate returns, with the S&P/TSX composite index rising 4.7 per cent. Returns for Canadian bond indices were positive during the month, with yields decreasing by 0.37 per cent. Despite this, yields at the end of the month were 1.09 per cent higher than at the end of July 2021.

Read: Canadian DB pension plan assets declined 5.4 per cent in June: report

While the value of assets have risen, so have pension costs. The pension expense index, which provides an indication of changes in the pension expense since the start of the year, rose from 47 per cent of its value at the beginning of 2021 to 55.9 per cent.

The report also revealed that expectations for 30-year inflation rose 0.06 per cent during the month, reaching 1.84 per cent. The moderate rise followed the release of inflation data from Statistics Canada showing the consumer price index reached 8.1 per cent on a year-to-year basis in June and an inflation hike unveiled by the Bank of Canada in July.

In the report, Gavin Benjamin, a partner in LifeWork’s retirement and financial solutions practice, noted long-term expectations have been almost unaffected by recent interest rate hikes. “July is a case in point, as the Bank of Canada increased its policy rate by one per cent, while longterm Government of Canada bond rates actually decreased by 0.37 per cent. . . . Plan sponsors should be wary of trying to predict changes to longterm interest rates based on anticipated changes to the Bank of Canada policy rate.”

Read: Average solvency position of Canadian DB pension plans improved in May: report