The funded position of a typical Canadian defined benefit pension plan increased on a solvency and an accounting basis as of Sept. 30, according to a new report by Telus Health.
The monthly index, which demonstrates changes in asset levels for an average pension plan since the beginning of the year, found the average solvency funded position reached 107.6 per cent, an increase of 0.9 per cent compared to the previous month. The balance sheet index, which monitors changes in the accounting funding level of an average DB plan, rose by 1.3 per cent month over month to 103.5 per cent.
The pension indices report also calculates the investment performance of Canadian DB plans by tracking Telus Health’s benchmark portfolio, which is evenly split between equities and fixed income assets.
Read: Average DB pension plan’s funded position up in June: report
The average investment return was negative 3.8 per cent for the month driven by down periods for both the equity and bond markets. During September, the MSCI ACWI index, which tracks global developed and emerging equity markets, returned negative 4.2 per cent in Canadian dollar terms, while the Canadian equity index — the S&P/TSX composite index finished the month with a return of negative 3.3 per cent.
Bond yields registered a high point at the end of September due to an expectation for central banks to hold higher interest rates to face inflation, said Murray Wright, an associate partner in the retirement and benefits solutions practice at Telus Health, in the report. “This will lead to further improvements in accounting and solvency funding levels for many Canadian pension plans, with the impact depending on a plan’s investment strategy and demographic characteristics.”
As well, despite a recent positive path for long-term bond yields, the Canadian yield curve remains inverted with short-term rates above their counterparts, he noted, cautioning pension plan sponsors to consider whether to retain material levels of interest rate risk or pivot to gain some protection against interest rate volatility.
Read: Canadian DB pension plan assets rise 1.8% in March: report