The average Canadian defined benefit pension plan lost ground on a solvency and accountancy basis in December, according to LifeWorks Inc.’s latest monthly report.
At the end of 2022, the solvency index reached 103.8 per cent, down 3.1 per cent from the end of November. The balance sheet index also fell 2.4 per cent — from 104.2 per cent to 101.8 per cent. As the indexes are reset to 100 per cent at the beginning of each year, this indicates an average plan’s solvency ratio improved by about 4.2 per cent and its balance sheet by 1.8 per cent during the year.
In December, portfolios with stronger domestic biases saw slightly higher losses than those with more globalized asset allocations. Losses on the global developed and emerging equity markets index, the MSCI ACWI, fell by four per cent during the month while the S&P/TSX composite index was down by 4.9 per cent.
Read: Canadian DB pension plan assets declined 5.4 per cent in June: report
Fixed income allocations also suffered during the month. Returns for Canadian bond indexes were negative as yields increased. Non-indexed short-term Government of Canada bond yields increased by 0.17 per cent during the month and long-term Government of Canada bond yields increased by 0.27 per cent.
“2022 was a very difficult year for financial markets with almost every asset class falling in value and, for the first time in decades, equities and bonds fell at the same time,” said Murray Wright (pictured), an associate partner in LifeWorks’ pension and benefits solutions business, in the report.
Market expectations for long-term inflation, the break-even inflation rate, also reached an annual high of 2.09 per cent, up from 1.87 per cent the previous month. “The extent to which a potential economic recession has been priced into markets is unclear . . . and if bond markets are right then the Bank of Canada will need to start bringing interest rates back down to support the economy,” he added.
Read: Typical DB pension plan improved on a solvency, accounting basis in March: report