In spite of overall losses, Canadian defined benefit pension plans saw their financial positions improve on a solvency and accountancy basis in April, according to LifeWorks Inc.’s latest monthly report.
An investment portfolio designed to mimic that of a typical pension saw its assets decline by 5.3 per cent over the month. Despite this, the solvency index, which provides an indication of changes in the solvency funding level of an average pension plan since the start of the year, rose 0.6 per cent to 107.8 per cent during the month.
One reason for the improvement in the average DB plan’s solvency ratio may be that the expenses associated with managing pension plans have dipped by almost half since the beginning of the year. The pension expense index, which provides an indication of changes in the following year’s pension expense since the start of the year, dipped from 67.3 per cent to 53.6 per cent.
Domestic stocks experienced a sharp decline, dipping five per cent during the month, with the S&P/TSX composite index rising 3.1 per cent. Global equities saw more severe losses, with the MSCI ACWI index finishing the month down 5.9 per cent. Canadian bond returns were also negative as yields continued to increase through the month.
In a press release, Juliana Spiropoulos, partner and head of investment strategy for asset and risk management at LifeWorks, said that, despite the recent losses, equities are still expected to generate high long-term returns.
“However, there are a couple of things to keep in mind. One, equities have had strong performance for years and some weakness to bring returns down to long-term averages is expected. Two, even though risks are global in nature, individual countries are impacted differently and diversification within an equity portfolio is still valuable from a risk and return perspective.”