The funded position of a typical Canadian defined benefit pension plan improved on a solvency and accounting basis in March, according to a new report by Telus Health.
During the month, the solvency of the typical Canadian DB plan rose by 0.4 per cent, finishing at 101.7 per cent of its value at the start of the year as a result of improving asset values and diminishing liabilities.
The balance sheet index, which notes changes in the typical accounting funding level, rose 0.2 per cent in March. It finished the month at 99.8 per cent of its value at the start of the year, reflecting changes to the discount rate, which fell during the period.
Read: Canadian DB pension plan solvency down 0.7% in February: report
The index calculates the investment performance of a typical Canadian DB plan by tracking Telus Health’s benchmark portfolio. Its assets are evenly divided between public equities and fixed income. Global equities make up 70 per cent of the equity portion, with the rest made up of Canadian domiciled equities. About 48 per cent of the fixed income portfolio is made up of long-term Government of Canada bonds and another 48 per cent of Canadian corporate bonds. The remaining four per cent is allocated to Canadian treasury bills.
By using the benchmark, the report found the typical DB plan’s asset values grew by 1.8 per cent in March, finishing at 105.2 per cent of its value at the start of the year. The most significant gains in the month stemmed from allocations to global and emerging markets, with the MSCI ACWI rising 2.5 per cent. Allocations to Canadian equities, as measured by the S&P/TSX composite index, faced mild losses, dipping 0.2 per cent.
Read: Report finds Canadian DB pension plan assets declined 3.1% in December
Declining bond yields also helped improve the financial position of the typical DB plan. Short-term Government of Canada bond yields fell by 0.47 per cent and long-term bond yields were down 0.18 per cent. The break-even inflation rate fell 0.22 per cent to 1.68 per cent. This reflects a consensus view that long-term inflation would be lower.
The report noted the success seen by the typical DB plan in March wasn’t shared by many plans. Performance varied considerably as a result of the coronavirus pandemic. While deaths from the disease have exceeded expectations across Canada, its impact isn’t being felt evenly.
“[The] . . . number of deaths varied significantly by province and one would expect even more variation when drilling down to the experience of individual pension plans,” said Gavin Benjamin, partner in retirement solutions at Telus Health, in a press release. “Also, the Canadian Institute of Actuaries is currently conducting a mortality improvement research project which could, over the next year or two, lead to a change to the mortality improvement assumptions used by pension actuaries.”
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