The average Canadian pension plan’s funded ratio reached 120 per cent as of March 31, 2023, up one per cent over the quarter, while the average going-concern solvency ratio was 111 per cent, up four per cent, according to a new report by Normandin Beaudry.
The report attributed these increases to the strong performance of financial markets, which saw lower discount rates lead to a slight rise in the value of pension plan liabilities and decreasing current service costs.
Read: Funding status down, alternative investments up among DB pension plans: survey
Central banks have repeatedly increased their policy rates since the beginning of 2022 to stop runaway inflation, at the risk of causing a recession in the process, said the report, which also noted that economic data for the start of the year demonstrated that inflation is slowing down. As well, company profits stabilized and unemployment remained low.
However, it also highlighted the volatility of key financial market returns, with a large part of the initial optimism erased mid-quarter after three regional American banks went bankrupt after a run on deposits and European bank Credit Suisse Group was acquired by UBS Group for about 40 per cent of what it was worth the previous week.
These events shook the markets and served as a reminder to investors that the repercussions of rapid hikes in central bank policy rates have yet to be fully felt, said the report.
Read: U.S. bank failures have minimal impact on public pension plans: experts