The average Canadian defined benefit pension plan saw improvements on a solvency and accountancy basis in December, according to LifeWorks Inc.’s latest monthly report.
It found the average plan saw its solvency index rise to a new high of 112.1 per cent, up from 110.4 per cent at the end of November. Its balance sheet index, which provides an indication of changes in the accounting funding level of an average pension plan since the start of the year, rose slightly during the last month of 2021, from 111.6 per cent to 112.9 per cent — just shy of the 113 per cent high seen in October.
Domestic stocks drove returns during the month, with the S&P/TSX composite index rising 3.1 per cent. Other stocks also performed well, with developed and emerging markets equity index, the MSCI ACWI, rose 2.4 per cent in Canadian dollar terms. Returns for Canadian bond indices were also positive as yields decreased.
Read: Majority of Canadian DB pension solvency ratios above 100 per cent: report
One notable finding comes from the accounting (pension expense) index, which provides an indication of changes in the year’s pension expense. In the first two months of 2021, the index dipped by about 20 per cent. Since then, it has remained below 80 per cent — finishing out the year at 77.6 per cent.
Another notable finding comes from the plan asset index, which provides an indication of changes in asset levels for an average pension plan since the start of the year. The December report found the average DB plan saw its assets grow in value by about 8.6 per cent over the course of the year.
In a press release, Gavin Benjamin, a partner in LifeWorks’ retirement and financial solutions team and an author of the report, said 2021 saw most DB pension plans benefit from positive equity returns and bond yields. “Looking ahead to 2022, plan sponsors can expect continued uncertainty and periods of volatility as issues such as COVID-19 variants, the uneven economic recovery, inflationary pressures and the gradual normalization of monetary policy impact the economy and the financial markets.”
Read: 2021 a banner year for largest U.S. DB pension plans: report