The financial health of Canadian pension plans continued to strengthen in the first half of 2007, says a Mercer report.

“The improvement is due to an increase in long-term interest rates that have lowered the cost of pensions,” explains Paul Forestell, retirement professional leader at Mercer Human Resource Consulting.

Long-term rates have risen by about half a percent since the end of 2006. Mercer’s Pension Health Index increased to 89% at the end of June from 84% at the beginning of the year.

On the asset side of the pension plan balance sheet, the Canadian equity component helped drive the improvement in the index. While equity markets worldwide have been strong over the past six months, most Canadian investors don’t hedge the currency, so the recent strength of the Canadian dollar offset foreign equity market gains.

A typical balanced portfolio of investments would have returned 0.3% for the second quarter of 2007 and 1.8% for the first half of the year.

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