The benchmark Canadian DB pension plan tracked by Towers Watson’s Pension Index increased by 1.6% in the fourth quarter of 2012, due to positive investment returns and an increase in the liability discount rate.
According to the Towers Watson analysis, equities around the world performed well during the quarter, continuing an upward trend seen throughout 2012. The S&P/TSX Composite Index returned 1.7% for the quarter and 7.2% on the year. While the Canadian energy and materials sectors lagged in Q4, positive returns were generated in the other major sectors. Non-Canadian stocks did even better, with U.S. equities tracked by the S&P 500 Index returning just 0.8% for the quarter but 13.4% overall in 2012, and the MSCI EAFE Index generating 7.8% in Q4 and 14.7% on the year.
While the Canadian dollar fell during the quarter relative to other currencies, the dollar’s appreciation over the year reduced 2012 net returns for unhedged Canadian investors holding foreign stocks.
The Towers Watson benchmark plan’s 60/40 portfolio of equities and fixed income reported gains of 1.9% for the quarter. The more conservative 40% equity portfolio reported gains of 1.4% for the quarter, and the more aggressive 80% equity portfolio gained 2.5% in Q4.
The Towers Watson Pension Liability Index increased by 0.2% for the quarter and 8.1% for the year, reflecting the combined effect of interest accumulation and the discount rate change.