Aon Hewitt's most recent survey shows that the health of Canadian defined benefit pension plans improved last month.
Each month, Aon Hewitt surveys the performance of the 449 defined benefit pension plan it administers in Canada’s public, semi-public, and private sectors. Results from May show that pension health recovered slightly in May, thanks to mostly to stable growth in equities.
Bond yields dropped
Aon Hewitt points out that 10-year Canada bond yields dropped 22 basis points last month, which increased solvency liabilities. However, this decline was offset by positive asset returns in equities, especially in investments in the U.S. (up 6.3%) and globally (up 5.0%) equities. Pension plans also received a boost from growth in global real estate assets (up 4.5%) and infrastructure (up 3.8%). Canadian equities made a marginal contribution during the month, increasing by just 1%.
The survey measures plans’ assets over liabilities to calculate their solvency funded ratio; as of June 1, 2016, the median solvency ratio stood at 87.1%, which is one percentage point higher than it was on May 1, 2016. Funding ratios also improved over the period, with 10.7% of the plans reporting that they were more than fully funded as of month-end, up from 9.6% on May 1.