The aggregate funded ratio for Canadian defined benefit pension plans increased from 96.9 per cent to 100.8 per cent during 2022, according to Aon’s latest pension risk tracker.
The tracker, which calculates the aggregate funded position on an accounting basis for companies in the S&P/TSX composite index with DB plans, also found pension assets lost 15.6 per cent over the year.
Specifically in the third quarter of 2022, the average DB plan’s projected benefit obligation fell 3.4 per cent, from 100.5 per cent to 97.2 per cent. In addition, market volatility led to asset values decreasing by 0.1 per cent in the quarter.
“Asset performance was poor in 2022,” said Nathan LaPierre, partner in wealth solutions at Aon, in a press release. “The poor asset performance was offset by a substantial increase in interest rates and therefore a decrease in liabilities. Many pension plans will be starting 2023 in a very good financial position. Plans sponsors can use this favourable position to reduce risk in their asset allocations or through pension risk transfer activities.”
During 2022, the long-term Government of Canada bond yield increased 160 basis points relative to the last year-end rate and credit spreads widened by 45 basis points. This combination resulted in an increase in the interest rates used to value pension liabilities from 2.77 per cent to 4.82 per cent, noted the report.