Report reveals improvement for funds despite weaker loonie
The third quarter of 2017 was a good one for Canada’s defined benefit (DB) pension funds as interest rates increased and bond yields soared, boosting median solvency ratios.
Emerging markets (+3.9%) and Canadian (3.7%) equities were the leading equity class returns; and although the lower Canadian dollar impacted asset returns, this was more than offset by strong gains for bond yields, a report from Aon Hewitt shows.
“Rising interest rates are good news for Canadian pensioners and the plans they will rely on in retirement, and so there was plenty of good news for them in the third quarter, as most Canadian DB pension plans experienced marked improvements in financial health,” said William da Silva, Senior Partner and Retirement Practice Director at Aon Hewitt.
He added that Canadian DB plans are enjoying the best median solvency level in a decade, and that positions them well to prepare for the future.
Aon’s Median Solvency Ratio as of Oct. 2, 2017 was 99.3%, up from 94.8% at June 30. The Q3 ratio is at its highest since Q3 2007, when solvency stood at 99.7%.
Almost half (47.7%) of plans were fully funded as of Oct. 2, up from 37% of plans as of June 30.
“There is surprisingly little fear in markets right now, and despite geopolitical risk and high asset valuations, plans have benefited from the trend toward improving solvency,” said Ian Struthers, Partner and Investment Consulting Practice Director at Aon Hewitt.
Struthers said that Aon Hewitt expects only modest rises in bond yields and this reduces the risk of a reset in asset values. However, with most asset classes at record high valuations, there is a risk that should be offset by smart diversification.
“As we have seen over the past quarter, volatility can come from lots of places, such as the Canadian dollar,” he said. “It is always wise to build a roof when the sun is shining. Pension plans are benefiting from a Goldilocks state of a bull market in equities and rising yields. History suggests that won’t last forever.”
Emerging markets (+3.9%) and Canadian (3.7%) equities were the leading equity class returns; and although the lower Canadian dollar impacted asset returns, this was more than offset by strong gains for bond yields, a report from Aon Hewitt shows.
“Rising interest rates are good news for Canadian pensioners and the plans they will rely on in retirement, and so there was plenty of good news for them in the third quarter, as most Canadian DB pension plans experienced marked improvements in financial health,” said William da Silva, Senior Partner and Retirement Practice Director at Aon Hewitt.
He added that Canadian DB plans are enjoying the best median solvency level in a decade, and that positions them well to prepare for the future.
Aon’s Median Solvency Ratio as of Oct. 2, 2017 was 99.3%, up from 94.8% at June 30. The Q3 ratio is at its highest since Q3 2007, when solvency stood at 99.7%.
Almost half (47.7%) of plans were fully funded as of Oct. 2, up from 37% of plans as of June 30.
“There is surprisingly little fear in markets right now, and despite geopolitical risk and high asset valuations, plans have benefited from the trend toward improving solvency,” said Ian Struthers, Partner and Investment Consulting Practice Director at Aon Hewitt.
Struthers said that Aon Hewitt expects only modest rises in bond yields and this reduces the risk of a reset in asset values. However, with most asset classes at record high valuations, there is a risk that should be offset by smart diversification.
“As we have seen over the past quarter, volatility can come from lots of places, such as the Canadian dollar,” he said. “It is always wise to build a roof when the sun is shining. Pension plans are benefiting from a Goldilocks state of a bull market in equities and rising yields. History suggests that won’t last forever.”
