The solvency ratio of Ontario’s defined benefit pension plans jumped four per cent in the third quarter of 2020, according to an update by the Financial Services Regulatory Authority of Ontario.
The increase is further evidence that market recovery is well underway since the coronavirus pandemic rocked the world economy in early 2020, noted the report. Indeed, the median projected solvency ratio steadily increased to 94 per cent by Sept. 30, 2020, up from 90 per cent in June and 85 per cent in March.
The FSRA’s projections showed the latest growth is due to positive investment returns, which averaged just above two per cent. Another factor was an increase in solvency discount rates, with 10 basis points in the non-indexed commuted-value rates and 28 basis points in non-indexed annuity purchase rates.
The regulator also projected that 34 per cent of the province’s DB plans are fully funded on a solvency basis. However, it noted 26 per cent still have a lower solvency ratio below 85 per cent. Despite most plans having opened the year in a stronger position, gains from the last two quarters still fall below the December 2019 level of 99 per cent, according to the update.
With much of the world currently in the second wave of the pandemic, the regulator cautioned DB plan administrators to review their funding and investment strategies so they can appropriately manage their plans through the cycle.