Solid performance from equities and long-duration domestic bonds in the third quarter of 2016 boosted returns for Canadian defined benefit pension plans, according to a new report by RBC Investor and Treasury Services.
Plans managed by the firm returned 4.2 per cent in the third quarter, up from 2.9 per cent in the second quarter. Returns are up 7.3 per cent year-to-date.
“Canadian pension plans continue to post improved quarter-over-quarter returns this year,” said James Rausch, head of client coverage of Canada and global head of transaction banking – banks, brokers and exchanges at RBC Investor and Treasury Services.
“The resources, materials and energy sectors continued to fuel the gains in Canadian equities, while global markets adapted to the post U.K. referendum landscape and emerging economies realized gains.”
Global equity returns spiked at 6.7 per cent in the third quarter from 1.6 per cent in the previous quarter and Canadian equities fared similarly well at 6.7 per cent in the third quarter, up from four per cent in the second quarter.
While domestic bonds continue to be a source of steady albeit low returns for Canadian plans at 1.6 per cent in the third quarter of 2016, long-duration bonds provided slightly higher returns with its benchmark index returning 2.4 per cent in the third quarter, according to the report.
Canadian defined benefit pension plans have also fared well when it comes to median solvency between September and October, according to Aon Hewitt’s monthly pension plan solvency survey.
The 437 plans the consultancy administers saw a median solvency of 86.1 per cent at the end of October, a slight improvement on the 84.6 per cent median solvency reported at the end of September.
The percentage of these pension plans that are fully funded also increased, from 12 per cent at the end of September up to 17 per cent at the end of October, according to the survey.