The average Canadian defined benefit pension plan saw improvements on a solvency and accountancy basis in October, according to LifeWorks Inc.’s monthly report.
Its monthly report on DB pension indices found the average plan saw its solvency index rise to 111.5 per cent, up from 108.8 per cent at the end of September and a high for the year. Its balance sheet index, which provides an indication of changes in the accounting funding level of an average pension plan since the start of the year, rose slightly during October, from 111.1 per cent to 113 per cent, another high for the year.
The solvency figures were buoyed by the month’s positive returns, including equity gains averaging 1.6 per cent. In September, Canadian DB plan returns had dropped by 2.5 percentage points as a result of the softening global equity market.
Much of October’s growth can be attributed to the strong performance of Canadian equities. Stocks listed on the S&P/TSX composite index made average gains of five per cent. While the MSCI index of developed and emerging market stocks found equities were up 2.8 per cent in Canadian dollar terms.
Bond yields were also driven up in October, following the Bank of Canada’s announcement that it would be ending its policy of buying Government of Canada bonds. By the end of the month, non-indexed federal government bonds saw yields rise four basis points.
“In its October monetary policy report, the Bank of Canada reported that, from a good news perspective, economic activity and employment have increased in the second half of 2021,” said says Gavin Benjamin, a partner in LifeWorks’ retirement and financial solutions team, in the report. “On the other hand, supply disruptions and energy constraints are limiting growth and causing inflationary pressures in many countries, including Canada.
“With this mixed bag of developments in the Canadian and other economies, pension plan sponsors should continue to be mindful of the financial risks imbedded in their plans, despite the improvement in the funded positions of many of these plans so far in 2021. In fact, the current environment of improved solvency funded positions and highly competitive annuity pricing presents opportunities for many plan sponsors to transfer risk from their plans on a cost-effective basis.”