After an eventful 2025, there are several developments and trends affecting Canadian defined benefit pension plan sponsors in 2026.
Focus on investment strategy
Major equity markets performed well in 2025, which was a key driver for another year of improved funded positions for many DB pension plans. Although most pension plans are well funded today, pension investment strategy will continue to remain important through 2026.
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In the midst of a tariff war with the U.S. and concerns about low productivity improvements in the Canadian economy, there have been calls for Canadian pension plans to invest more in Canada. In its November 2025 budget, the federal government announced an initiative of the Business Development Bank of Canada intended to incentivize investments in Canadian assets by pension funds and other institutional investors.
In 2026, Canadian pension plan administrators and the investment managers that they hire will have the opportunity to assess whether sufficient attractive Canadian investments are available that would support an increased allocation to Canadian assets.
With the incredible performance in recent years of the ‘Magnificent Seven’ stocks, the U.S. equity market reached record levels of concentration in 2025. Also, above-average recent returns for equity markets increase the likelihood of market corrections, although the timing and magnitude are difficult to predict. Maintaining sufficient portfolio diversification can reduce the impact of these risks on a plan’s funded positions.
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In order to seek long-term returns while maintaining or increasing diversification within the pension plan fund, there will continue to be interest in allocations to alternative investments, such as infrastructure, private equity and real estate. Plan administrators considering either their plan’s first allocation or an expanded allocation to alternative investments should consider the pros and cons of doing so to ensure their decision is the right one for their plan.
Over the past few years, the solvency funded positions of DB pension plans have benefited from the significant increase in long-term interest rates, which caused a decrease in pension liabilities. Since the end of 2020, long-term Government of Canada bond yields have increased by more than 2.5 per cent. Pension plan administrators should continue to monitor their plan’s exposure to interest rate risk and, if appropriate, modify their investment strategy to protect the plan’s funded position from any future decreases in long-term interest rates. In addition, administrators should ensure they measure and manage other investment-related risks, such as market, liquidity and climate risk.
The trend of pension de-risking by transferring risk to an insurance company through a group annuity purchase is expected to continue in 2026 and beyond. For a plan sponsor considering an annuity transaction in 2026, an appropriate investment strategy should be established and implemented to both protect the funded position of the plan prior to the transaction and ensure sufficient liquidity within the portfolio to facilitate payment of the annuity premium.
Also, where only a portion of the pension plan’s obligations is included in the annuity purchase, it’s important for plan sponsors to develop a post-transaction investment strategy that’s appropriate for the characteristics of the plan obligations that remain after the annuity purchase and that’s ready to implement shortly after the transaction has occurred.
Pension mortality assumption
The mortality assumption used in the actuarial valuation of a pension plan includes two key components. The first component is the base mortality table, which reflects assumed mortality rates in a particular year. The second component is the mortality improvement scale, which incorporates expected mortality improvement in future years.
The Canadian Institute of Actuaries is expected to release a research report in March that contains the results of a study of Canadian pension plan mortality along with new pension base mortality tables. This new research report complements a CIA research report published in 2024 containing a new Canadian mortality improvement scale.
Pension plan administrators and their actuaries should be proactive in 2026 with revisiting the mortality assumption used to value their pension plan, which includes an assessment of the financial implications of adopting a new mortality assumption.
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Also, the CIA’s actuarial standards board will be conducting a review of the prescribed mortality assumption used to calculate commuted values payable from DB pension plans. A change to the prescribed mortality assumption may have cost implications for plan sponsors and would require updates to pension administration systems to incorporate the new assumed mortality rates.
Artificial intelligence
As with many other industries, the effects of artificial intelligence are already being felt in the pension industry. Many plan administrators and their providers have started using AI tools to improve the efficiency and quality of services they provide as well as manage risk.
The use of AI in the pension industry is expected to increase in 2026 as industry players learn from experience which applications provide the best returns on investment, while managing the associated risks of AI use as the technology continues to improve at an unprecedented pace.
In 2026, there will likely be an increased focus on the people management aspects of AI. Identifying which cohorts are likely to be enthusiastic adopters versus resisters will be critical, as well as the development and implementation of effective training and incentives tailored to specific cohorts that can help overcome usage barriers. Effective and targeted training can also ensure that the user-related risks associated with AI are effectively managed.
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