Lower bond yields and mixed markets drove down the median solvency ratio of Canadian defined benefit plans in May, according to Aon’s monthly survey.
On June 1, 2018, the median solvency ratio stood at 100 per cent, a drop of 1.7 percentage points since the end of April. Half (51 per cent) of the plans surveyed were more than fully funded, which was down 4.3 percentage points compared to the previous month.
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“This month showed just how unpredictable markets can be, particularly when geopolitical forces are adding to uncertainty,” said Ian Struthers, partner and director of Aon’s investment consulting practice.
“Fears of ‘Italexit’ suppressed international equity market returns, while closer to home, the U.S. imposition of metal tariffs on its NAFTA partners clouded the outlook for the Canadian economy, as well as for the Bank of Canada’s path to interest rate normalization.
“We haven’t seen those factors drastically affect pension asset returns — yet — but we can expect further market volatility as trade uncertainties, domestically and globally, play out. For plan sponsors, it remains advisable to consider paths toward risk mitigation, especially now that pension solvency positions remain exceptionally strong.”
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Among the defined benefit plans surveyed, pension assets returned an average of 1.8 per cent in May. Across equity indexes, Canadian and U.S. stocks saw the highest returns, with the S&P 500 and the TSX up 3.6 per cent and 3.1 per cent, respectively.