The overall solvency position improved slightly for federally registered pension plans in 2016 compared to 2015, but the majority of funds remained slightly underfunded on a termination basis, according to the Office of the Superintendent of Financial Institutions’ 2016/17 annual report.
The report found that, at Dec. 31, 2016, 80 per cent of the defined benefit pension plans that OSFI supervises were underfunded, with an estimated solvency ratio of 97 per cent across all federally registered plans. That compares to 95 per cent at the end of 2015. However, fewer funds were significantly underfunded, with a solvency ratio of 80 per cent or less, compared to the previous year. Some 16 per cent of plans fell into that category at the end of 2016, down from 19 per cent at Dec. 31, 2015, the report noted.
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The investment return, net of investment and custodial fees, of all federally regulated plans was 6.5 per cent in 2016, compared to 7.2 per cent in 2015, according to the report. Asset movements included an increase in debt securities and cash holdings, with $93.7 billion compared to $86 billion in 2015. As well, overall holdings in equity allocations rose to $84.5 billion from $84 billion in 2015. Overall plan assets rose to almost $206 billion in 2016, compared to $188.9 billion in 2015.
As of March 31, 2017, 30 pensions were on OSFI’s watch list for plans facing higher risk due to their financial condition, plan management or other reasons. Of that group, 23 were defined benefit plans.
The report also noted Canada’s group annuity market grew to $3 billion total sales in 2016, up significantly from $1.1 billion in 2012. Plan sponsors are no longer purchasing annuities solely for terminated plans. In fact, more than half of group annuity purchases in the past few years have been for ongoing plans, according to the report, which noted this risk-transfer tactic is likely to continue to gain popularity.
In 2016/17, OSFI continued to examine how to improve the supervision of defined contribution plans. In 2017/18, it will pay particular attention to defined contribution provisions by gauging the trends in default investment accounts and the adequacy of information relating to fee disclosure.
There were no new pooled registered pension plans in 2016, with only four federally registered PRPPs in existence, the report stated. One such plan reported entering into contracts with four new employers and had enrolled just 53 members.