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Canadian DB pensions benefit from higher asset returns in November: Aon

December 6, 2018
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Though financial markets were volatile and bond yields dropped, Canadian defined benefit pension plans benefited from higher asset returns in November, with median solvency standing at 100.6 per cent, according to Aon’s monthly survey.

Among the plans surveyed, 48 per cent were more than fully funded, down just 0.2 percentage points from the end of October. As well, gross pension assets returned 1.8 per cent in Canadian dollar terms, with all equity and fixed-income asset classes rising.

Alternative asset classes also performed well, with global infrastructure up 3.1 per cent and global real estate up five per cent. However, bond yields dropped, with a negative effect on pension solvency, as lower yields reduced annuity purchase rates, subsequently raising pension liabilities, noted Aon.

Read: Canadian DB pensions reach highest solvency in nearly two decades

“What’s remarkable is that solvency remains so strong even after two dramatic equity market selloffs in each of October and November, but that won’t be guaranteed when the next downturn comes,” said Calum Mackenzie, partner and head of investment in Canada for Aon, in a press release. “Were it not for a late-November rebound in equities, the monthly solvency numbers would not have been as high; the monthly data, in effect, benefited from a timely upside move.

“As well, higher bond yields have been insulating pensions from the markets’ ups and downs, but that trend reversed in November and long yields declined. As markets enter a new phase of volatility and the yield curve flattens, plan sponsors should be building greater resilience and responsiveness into their investment and risk-mitigation strategies. At this stage of the economic cycle, any rebounds might prove very short term.”

Read: DB pension returns power through a difficult autumn

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