Canadian pension plans have grown significantly over the past decade, a survey by Willis Towers Watson has found.
Total pension assets were US$965 billion in 2006, compared to $1.6 trillion in 2016. The ratio of pension assets to gross domestic product grew by 30 percentage points in that decade, to 103 per cent in 2016 from 73 per cent in 2006.
As in Japan and the Netherlands, Canadians employers that provide pensions primarily offer defined benefit plans. But the needle is slowly moving towards defined contribution. In 2006, 97 per cent of Canadian pension plan assets were defined benefit. In 2011, that number dropped to 96 per cent. And in 2016, it fell further to 95 per cent.
Globally, defined contribution plans are becoming more and more popular. In seven major markets — Australia, Canada, Japan, the Netherlands, Switzerland, the United Kingdom and the United States — they’ve moved from taking up 41.1 per cent of the market in 2006 to 48.4 per cent in 2016. There, defined contribution assets are growing at a rate of 5.6 per cent each year, while defined benefit assets are lagging behind at 2.6 per cent each year.
Nearly half (46 per cent) of Canadian plans’ assets are in equities, 33 per cent are in bonds, two per cent are in cash and 20 per cent are in other investments.
Roger Urwin, global head of investment content at Willis Towers Watson, said pension funds worldwide made progress in 2016, largely because equity markets and alternative asset classes produced gains that exceeded expectations. “While funds in many countries have large pension outflows to deal with, it was encouraging to see overall asset values rise in the vast majority of countries covered in the study.”
Over the past 10 years, Canada, Switzerland and Britain have had the lowest allocation to domestic equities, while the United States has had the highest.
In its report, Willis Towers Watson also highlighted six medium-term factors that will have an increasing influence on pension fund development: improvements in governments and more talented chief investment officers; an increased focus on risk management, both in terms of investments that are too risky and those that are too cautious; the move towards defined contribution plans; competition among funds to attract top talent; a new value chain in which passive investing approaches and smart betas reduce fees somewhat; and an integrated approach to managing environmental, social and governance factors.