The solvency status of Canada’s defined benefit pension plans dipped for the first time this year in July, according to a new report by Lifeworks Inc.
The monthly pension indices report found the average Canadian DB pension plan saw its solvency ratio dip to 108.7, down 0.6 from the previous month. This is the first dip the index has seen in 2021, which began with a pension solvency ratio of 100 per cent.
In addition, it found Canadian DB plan investments grew by 1.2 percentage points during the month. The modest gains were fuelled by a strong global equity market, which generated gains of about 1.5 per cent in Canadian dollar terms.
With the S&P/TSX composite index up just 0.8 per cent over the month, gains for Canadian equities were more meager. Canadian bond yields dropped by about 0.1 per cent, although they remain high compared with the end of 2020.
More significant declines in the pension solvency ratio were reported south of the border. According to the actuarial firm Milliman, the average funded ratio of the top private sector DB pension plans in the U.S. dipped for the second month in a row.
The index, which tracks the solvency ratio of the 100 top-performing U.S. private sector DB plans, saw the average ratio dip to 95.8 per cent in July, down 1.4 percentage points from June. In May, the index reported that the average ratio stood at 98.8 per cent after eight consecutive months of increases. Despite the three point drop over the past two months, the average funded ratio remained higher than it was at the beginning of 2021, when it stood at 89 per cent.
In response to the continued decline, the analysts behind the Milliman index have adjusted predictions for its future performance. According to the authors, it’s likely that the average funded ratio index will close out the year at 97.1 per cent.
The previous month’s report predicted the index would exceed 100 per cent by the end of the year. Milliman’s analysts also adjusted expectations for the index’s performance at the end of 2022. In the July report, they predicted it would stand at 100.4 per cent, down from the previous months’ 106 per cent prediction.